Ep 104 Transcript: The Simple Financial Framework That Helps Business Owners Stop Guessing

This transcript was auto-generated and may contain errors in spelling or inaccuracies in the spoken words.

Shauna Lynn Simon (01:50.35)

Hello and welcome to the Real Women Real Business Podcast. I am your host, Shauna Lynn Simon, and today's guest is Zahra Carol Baghdadi, fractional CFO and Financial Strategist, and she is the founder of Crunch TimeZ CFO Services, Inc. So Zahra works with startup founders and small business owners who are tired of reacting to cash flow surprises and want to lead with clarity. She's known for breaking down finance into practical, relatable insights, and today she's going to walk us through

the three numbers that help you to stop flying blind. I'm gonna let her share exactly what those three numbers are. So you're have to stay tuned to check it out. And we're gonna talk about not only what they are, but how to use them to make smarter business decisions. Zahra, welcome to the podcast.

thank you so much for having me, Shauna Lynn

Okay, so let's start from the beginning. So let's see when you're saying that founders are flying blind financially, what does that actually look like in real businesses? Because I think a lot of people think like, I don't know, like I know what's going on here. I'm running my business, I'm getting sales in, my clients love me and you know, I've my website works great. I think a lot of people tend to look at all that front facing kind of stuff. So when you say they're flying blind financially, what are they missing here?

That's an amazing question to start with. So I work with a lot of founders that when they come to me, that's the position they are in or they have been for a bit. yeah, financially flying blind. And what I mean by that is they have a lot of cash surprises. they often tend to ignore looking at their bank accounts, which you're going to get to it later on. But then they're like,

Zahra Carol Baghdadi (03:29.056)

I have this payment that I didn't know about or like the client was supposed to pay me, but they haven't and I'm like really short. So a lot of cash surprises, which leads to tend to lead to emotional decisions, right? So when we have like all these gaps that we need to fill in, sometimes we get anxious and like really react to the situation.

So you're not just talking about, for example, like when you have an unexpected expense, like, shoot, our truck broke down. We're going to have to spend money to repair it. You're talking about even just not understanding how their cash is even flowing in and out of the business.

Exactly. So it's is one of the important numbers that we are going to look later on. That's for sure. The other thing that I would say they are flying blind a lot of times is that emotional part of growing the business, like as you said, client loves us. We are like, I don't know, improving our subscription rates. Customers are coming back to us. But a lot of times

Wonderful. Okay.

Zahra Carol Baghdadi (04:27.842)

Revenue does not equal cash, does not equal profit. And sometimes that excitement of growing that revenue gets us kind of like blind to the situation and the reality of what is really happening. So yeah, that's what they kind of mean.

And I'm so glad that you're talking about that because I tell people that your gross revenue is a vanity number. It is 100 % a vanity number. So I help home stagers to sell their staging businesses. And so this is something that we get into quite a bit. like, well, I bring in X number of dollars in revenue. I'm like, cool. What's your profit, though?

Like what, and that's not the only number that we're gonna, that we end up talking about, of course. And I know you're gonna probably be talking about that as well, but there's other numbers that mean a lot more to a potential buyer of a business than your revenue. Because if your revenue is high, but your expenses are also high, who cares how high your revenue is?

That's so true. I have also like the clients coming to me during the calls we have and they're like, we went to this networking event and so on so said they are a whatever it's 1 million 10 million 5 million dollar business like those big numbers and then I don't know sometimes the fear of kind of missing out or a little bit of comparison sits in and you're like, if she is a 1 million dollar business like you know what I mean and then as the reaction that I have to those conversations

Is this top line or manual or profit? Right, exactly. And then they pause.

Shauna Lynn Simon (05:56.47)

It's easy to say just these random numbers essentially that, you know, you're, how are you valuing your business exactly? And that's, and again, I mean, because I'm working with, stagers on the selling side of their business, valuation is also whole other thing. We're not going to get into that today necessarily. We're trying to actually operate in the business, but it's incredible though, how often we can, you can make the numbers essentially make you look as good as you want them to, but.

At end of the day, are you paying your bills? Are you able to feel confident in the decisions that you're making? So what are some of the early warning signs that there's something happening that they should be paying attention to? Like, is there something that would, should trigger them before they hit full out crisis mode on this?

There are a lot of different red flags that I can kind of list for you and it can be a long episode for us.

Maybe one the top ones that you tend to see, or what are the behaviors that you tend to see in business owners? Are they just simply avoiding looking at the numbers or they don't understand the numbers or they're just like, that's a tomorrow problem and tomorrow me will figure that out. What tends to happen the most? How are people finding themselves in this situation in the first place?

Yeah, I think psychologically and maybe culturally or fundamentally, for whatever reason, we have been taught that finances are complicated. Numbers are overwhelming and kind of like sits in the money mindset and all the psychology behind it. And because of that, because we feel overwhelmed, because we feel it's overwhelming to begin with or it's complicated to figure out, we tend to ignore it to a point that then chaos sits in, especially for earlier stage businesses starting out or they are in for it.

Zahra Carol Baghdadi (07:41.494)

have been in the business for a year or two, they kind of tend to focus on sales and operations and all those pieces, which is understandable, right? We need to get the clients through the door and all those pieces. But finance gets ignored for a long time until to a point that like all those surprises happen, right? So like, we don't have money in the bank to pay payroll or

We invoiced so many of the clients and so on and so on and we thought they were going to pay on time, like the cash flow time, which we are going to get into it. And then they forgot that, it takes time to collect and all those pieces and those reactive mode starts to set in, which are all those red flags. And then when those red flags come in and the chaos starts happening.

That's when they get to a point I'm like, that aha moment of, we should have actually paid attention to our numbers and remarks.

Right. I think, you know, and it's understandable, you know, when there's, when you think about the fun things to do and operating your business, there aren't a lot of people like myself and probably yourself as well, who get a little bit excited and giddy about spreadsheets and numbers. And sure, they love seeing the money pouring in, but they don't necessarily want to see what it translates into. What does it all mean? But I love what you're bringing up about the psychology of it because I think you're absolutely right. We've been taught that numbers are scary. And I will full disclosure here.

A lot of my listeners know this already. I have a bachelor of mathematics degree. So numbers are definitely a big thing for me. However, I absolutely despise accounting because those are two different kinds of numbers and two different types of problem solving and logic and analytics and all those things. So we tend to group all number things into the same thing. Now, as much as I despise accounting, that does not mean that I don't pay attention to my numbers because this is an accounting that we're talking about.

Shauna Lynn Simon (09:34.488)

These are very different. I think people think that paying attention to their numbers means doing all the bookkeeping themselves. Get yourself a bookkeeper. You don't need to be the bookkeeper here. That part is a little bit boring. And for those of you who love bookkeeping, like bless you, seriously, because, you know, I don't understand how you do it, but my dad did it for 30 years and I love him for it. But if you are someone where you're like, can't do the numbers, I'm willing to bet that we're going to change your mind today. So let's start getting into some of this. So if they can only track,

three numbers, what are the numbers that matter the most and why are we choosing these numbers?

Yeah definitely.

First, I love what you said. If you love bookkeeping, bless your heart. But just maybe as a little plug before I get into those three numbers, founders and owners are really strong in one thing, many things, but then one thing like specifically, and hence that's why they started the business. They're good at sales or they really love creative parts of the business. Hence why we are entrepreneurs. What I'm trying to put out there today is I don't want you to become expert in accounting.

That's not what I want to do. I don't want you to start loving your spreadsheets. Not that either. Kind of like I want to change your mindset about how can by looking at these three numbers, how can we really become intentional about our finances? Not accounting. Yeah, let the bookkeeper do it, her or his job. They love it. Let's just let that be their part. So the first number I would really encourage

Zahra Carol Baghdadi (11:08.718)

everybody to start paying more attention to is cash flow. Right? Cash is king. We have heard it all. We have heard it so, so, so many times, but how many of us really intentionally are thinking about it and looking at it? And it's not just like how much revenue comes through the door, but really how much comes in and then goes out to begin with. So this, think that's the most, important number that we should know to begin with.

Okay, let's break this down a little bit because someone's saying, again, I got to pay attention to cash flow. How do I find my cash flow? Like, is there a report they should be running? Is it something they should just be looking at? Like, how are they tracking this number? Because I think it sounds great in theory, but someone's like, well, yeah, I know cash flows in and cash flows out. What do want me to do when I'm watching it exactly?

Yeah, I want everybody to pay attention to the timing of things first as the number one important thing that we need to be watching for. And let me tell you what I mean by that. So let's say a business is as a consulting business service providers and we invoice our clients at the end of every month, we kind of feel that, the money is going to come instantly. But that's not the reality, right? It takes time for us to start collecting.

But then there are so many expenses that are instant, right? So we pay instantly for subscriptions. Sometimes our payroll is instant or subcontractors start calling us and we have to make those payments. There is not much delay that we can really stretch. So the first important thing when you're looking at your cash in and out, it can be a spreadsheet, can be your QuickBooks, can be just like simple paper if you are not as complicated or as a complex business yet.

Just the timing is super, super important. Right? So if you have all these like cash holes that we're constantly trying to fill, that's the very big red flag when it comes to the cash.

Shauna Lynn Simon (13:09.038)

I've got some of my clients, are just like pen to paper. They have this little sheet of paper each month where they're like, okay, I've got these jobs coming in. I work with a lot of home stagers predominantly, but also, I mean, anyone in a creative business, interior designers, photographers, et cetera. But I'll use stagers as an example, because I think the stages are the most notorious for just the pen and paper. And they're like, okay, I'm expecting these jobs to come in. And they just start putting some dates to them. And then they're like, okay, I got to pay the movers on this date and this much money.

It's kind of like a miniature version of a spreadsheet, but it's not that fancy. It's just taking a look at it in black and white or blue and white or whatever, and just kind of getting a feel for like what's coming in and what's going. No mind you, they're not necessarily tracking every business expense, like their warehouse expenses and their insurance and their gas and everything else on this spreadsheet. It's more just making sure that, you know, the most important things are getting paid. I guess warehouse would probably be on that spreadsheet, you know what I mean? But anyway, but I know for myself, I use a spreadsheet.

for both my personal finances and my business finances and it's forward looking. So I fill it out like in advance. I know that my insurance comes out on the 20th of every month and it costs me the same thing every single month. So that is automatically plugged in there. So all of my fixed expenses and fixed revenue go into my spreadsheet. And then I add in anything that's variable as well but it helps me to see what kind of.

gaps I might have because it's forward looking. It's going to say, Hey, you're going to have a negative balance at this time next month, unless you bring in a whole lot more money. So it helps me to understand what that looks like. Now I'll admit I've never really worked in a business where, and I know probably a lot of people that are listening to this do though, where like I've never worked in a business where I'm performing a service and then I'm billing someone and I'm not getting paid for like months at a time. And that's gotta be something where.

Again, that's not my business, but I'm sure there's people that are listening where that is their business. How do you make those things, how do you make those ends meet essentially? Like how do we make it so that when the money's coming in, we're paying future bills with it, but we're still getting our current bills paid? Like, doesn't it take a little while, especially if they're newer in business, like how do you start banking that so that the cash is actually flowing in the right direction?

Zahra Carol Baghdadi (15:23.33)

That's a very good question. Let me tell you, kudos to you for having those spreadsheets.

I get a little giddy with the spreadsheet. That's just my jam.

Yeah, and the listeners might tell us, you just told me you don't want me to become a spreadsheet master, but you probably need a little bit of it. Especially with AI, I think we need to start using tools definitely to our advantage way more. But going back to your question, so again, that timing becomes crucial, right?

if we are starting and if you are at the beginning of this business journey, we definitely have to have a startup fund to begin with, right? So if, for example, just like day one I started and I know that day one I have so many of the expenses that I have to pay, but the client's payments are not going to come in for another one or two, three months. Then as a business that I started, I have to have that funds to begin with. There's just no way around it. It would be personal funds, bank loans, whatever, savings.

But then as I'm now maturing to a business that has cash flow, cash reserves, then that timing becomes important, right? So we have to make sure at the beginning of the month, if we are faced with all those timings, we have that cash reserve to kind of have that cushion to pay for those instant expenses until the client money comes in. This is very important.

Zahra Carol Baghdadi (16:50.664)

I keep saying this is very important for everything on this episode because everything is important but like it triggers a lot of questions when we think about cash flow timing. One conversation I had two days ago with an amazing consultant, she has this like very interesting packages that she sells but because the packages are high value the clients have chosen to pay her on installment right so she secure the client, the client is there, the money

is coming for sure, but there is a timing when the money comes in. And then when we looked at their business model, like even if we plug all the cash flow timing on a spreadsheet and really takes care of all the reserves and everything, it's still her business model is not really sustainable. Like if you look at the entire year, because she's always in these cash holes of trying to catch up, right? Even if we the good cash reserve.

And then that prompted me to ask her a question and say, you know what, how about you have these amazing packages that you sell, but then how about if you think about a retention model as well that you could bring these clients in, but at some point maybe you need to provide them extra services that you can then charge them on a monthly basis. So then like thinking about cash flow timing, it...

demands a lot of other questions that comes out of it. It's like doing a little bit of surgery of your business.

That makes sense though too, yeah. And I think that's, you're kind of hitting on a really good point there as well, that it might look a little bit different in each person's business, but sometimes the answer really is that you just need to be able to bring more money in. But if you're already at capacity and you can't just take on more clients, well, how do you sell them on something else? Like this is where people need to kind of get creative sometimes, but we need to take a look at our business model and say, like, is this sustainable? Because one of the things that...

Shauna Lynn Simon (18:47.81)

I mean, if you've listened to this podcast before, I've preached this to you. don't even know how many times, but killing yourself to deliver your services isn't going to do anyone any good. So the only way to make more money is to work more hours. Your business will never be able to grow and thrive, period, full stop. So we need to be looking at does the cash flow that's coming in based on the hours that I'm working, based on the services that I'm providing, based on what I'm currently doing.

or what I foresee myself doing, does that actually work? Like one of the things that I often have some of my clients do is a bit of a forecasting spreadsheet. It's not overly complicated, but it does plan out like what do the next 12 months look like. And when I ask them, know, what's your revenue that you're wanting to bring in? Like, oh, well, I want to be bringing in, you know, $300,000 next month or next year. I'm like, great. So we break that down by month and you know, whatever that works out to me to say it's about $25,000 a month. I know that's not perfect math, but let's say they're bringing in about $25,000 a month.

Okay, so what does this look like to bring in $25,000 a month? Like, I need to sell these numbers, this quantity of my services. Great. Do you have the capacity to accommodate that quantity of services in one month? well, no. Then you can't make $25,000 in a month unless you change something about your business model. So I like that you're looking at the cash flow, being able to look out for the year. You're being, you're able to tell them like, listen, this won't work.

There's no scenario where this starts to suddenly start working. You're constantly operating in a deficit and something else needs to change. That's incredibly valuable data.

Exactly. Yeah, it's like really, really looking to your business and understanding is this like, is this sustainable? Can I keep doing what I have been doing and always filling these gaps? I was listening actually to one of your podcast episodes. I don't remember the exact title, but you were also talking about pricing. Yeah, lot. Yes, lot. But that specific episode really brought a great point. also, if you look at your cash flow timing,

Shauna Lynn Simon (20:41.23)

I talk about pricing a lot.

Zahra Carol Baghdadi (20:50.862)

the timing itself, sometimes you're like, hmm, I might not need, again, it's different from business to business and scenario to scenario. But then sometimes you're like, maybe I don't need more sales, but I actually have these holes that I need to fill. And then maybe can I move my payments? Like if I have to pay something at the beginning of the month, can I move it to the end of the month? So I'm covered for that time. So, and then sometimes it's more sales, but then as you were saying, Shauna Lynn,

Do you have capacity or not? If you don't have capacity, can you change your pricing? Right? A lot of questions come when you start looking at your cash flow and specifically your cash flow timing.

Absolutely. And I know that one of the most common things that I hear from people is that, you know, there's money that's constantly coming in and yet my bank account seems to always be empty. I'm always surprised by my bank account. Like, I feel like my business is doing, I'm doing good business, but I can never seem to get caught up. And that's that cash flow. And I think what we're touching on here, Zahra, is a really important point because I think that what ends up happening is people think this is how it's supposed to be.

Cash flow is not supposed to be easy because, insert whatever reason, because I'm growing the business, because I just invested in this, because the market has shifted right now, because, because, because we're going to make all these excuses as to why the cash isn't flowing properly as opposed to just really paying attention to what it's trying to tell us.

Exactly and go deeper and ask different questions. It's like understanding your own health. It's a business health, right? So when I'm like, I constantly get cold, like I'm constantly sick myself and I'm like, I need to go deeper. Am I like, do I have vitamin deficiency? Do I need to take care of myself? Do I need to eat better? Like you just go deeper and deeper and ask those questions. And when it comes to the business health.

Zahra Carol Baghdadi (22:46.688)

It's almost the same, right? So when we are looking at our bank is always empty. So then go deeper, right? So let's see where the challenges are coming from, right?

Love that. Yeah, that's a really good point. I love that related to your health. Yes, like let's keep digging and let's advocate for this. Okay, so the first number we're gonna pay the most, we're gonna pay a lot of attention to now is our cash flow. What's the next one that we should also be paying attention to?

Next one is profit margin. So this is what I really advocate for as well. And I think you are, you already said that in our conversation or at the beginning of this episode. Yes. So let me maybe open it up a little bit more. And I'd love to hear your thoughts as well.

So a lot of them, we have this Office Hours every month. I call it CFO Office Hours that different clients come in and we talk about different things, almost such as same as this episode, but then going really deeper for each case. So when you bring a lot of revenue in and you don't see the cash in the bank, again, going back to the first number that we need to see, when we go deeper, we might kind of like,

discover that we don't have healthy profit margin to begin with, right? So profit margin is super important because that kind of like makes your business sustainable in the long run. If I sign a big deal with, if you're a CPG brand, let's say, and you sign a big deal with a grocery chain, right? So they dictate the prices you really want to get in, you really want to bring revenue.

Zahra Carol Baghdadi (24:29.206)

And let's say the deal is for $500,000 or whatnot. I'm just throwing the numbers out there. And then, and then when you look at your margin, you're like, I really, really went through tears, efforts, sweat and tears and all of that. And at the end of it, I made only five grand, right? And that five grand, when you think about it is your profit margin. So five grand is definitely not enough to pay for your salary, let alone your team salary, rent, so many other things.

So that's why the second number I would love for us to really become more intentional about it is our profit margin.

Yeah, and I think, you know, especially because most people listen as podcasts are in service based businesses. We're not selling widgets. Widgets are easy to price out. You buy a widget for, let's say I buy a widget for $5. I resell it for $10. Great. I just made five bucks on it. I am way over simplifying profit margins for anyone who's going to call me out on it. Yes, I get this. The point is that I think that it's easy to value a product.

rather than your services. Because I think it's easy in services for things to sneak in and not real. You don't realize that you're bleeding money. That money's just pouring out of the seams and that you should be charging more. I see so many people in the service industry who price themselves because somebody else was charging that amount. They haven't done any sort of diagnostics on their own business to see what does it actually cost me to deliver this service? And we look at

any money we make is good money, right? So as an example, I also do interior design work. I'm not gonna quote my coaching fees in this because I tend to do custom coaching. So I'm not gonna talk about like what I charge for an hour, but, and I do my coaching based on value. Interior design is also based on value, but I do have an hourly rate for it. It's $175 an hour. So I see so many designers that get into the industry and they're like, I'm gonna charge $175 an hour. Wow, like I used to work for like,

Shauna Lynn Simon (26:28.398)

$30 an hour, I'm gonna be making so much more money an hour, full stop. They're like, I used to make $30, I'm now making $175. I'm doing amazing. And they don't calculate in all the extra time that it took for them to, that the time that they have to spend for that's not billable. It's just your client facing time that you're charging for. So that's great for getting paid that, but you're still working more hours than just the time that you're facing your client. So there's so many things that we get caught up on in the profit margin.

And there's so many people I find who don't know how to find that profit margin. They're like, well, at the end of the year, my accountant told me I made $60,000. I don't know where the money is, but I was told that I made that money. And that's what they think of as profit. But when we're talking about profit margin here, are we talking about, is the profit margin of the business? Are we talking about each individual service? Are we talking about all of the above? Like, what are we talking about? And how are we finding that?

Fantastic question. So overall, I want everybody to know their profit margin overall on the business and profit margin. We are not talking about what the number that accountant tells you you made because that is net profit after all the expenses are paid. What we are talking about profit margin, we are getting a little bit into the finance and accounting area by talking about. For us to make enough money on the services or products that we are offering to cover our fixed costs and more.

Right? So that's what we are talking about here. And then when, if we are providing different services and products, then I want everybody to go one layer deeper and understand actually which service makes them the most money. Right? So if I provide three services in a month or in quarter or whatever timing you want to define, and when you crunch the numbers, high level, don't like, again, I don't want you to get into the nitty gritty. And you're like, actually those three services made the most of my money.

And now looking at the time that I spend every month, I'm I'm spending more time and effort and money on the services that they don't make as much money. So why am I, what am I thinking? Right? So then when you are looking at your profit margin, high level, perfect, and then go deeper and understand each service or a skew or a category, and then you can then decide which services you want to double down on and which services you might want to let go of.

Shauna Lynn Simon (28:55.086)

That was explained so clearly, so easily, so like, I don't need to crunch a bunch of numbers to do this, but just like, yeah, which services are actually making you money? I had Michelle Williams on my podcast last year from Scarlet Thread Consulting, I believe that's the name of her company. And she was talking about how she worked briefly as an interior designer for like a few years as an interior designer. She crunched the numbers and realized that she was basically paying

to do her job as in like, she was literally losing money every time she left the house. She's like, I do better just to stay home. She was in a negative position every single time. And I've gone through it with clients. I've, I have one client I worked with her a few years ago. We crunched all the numbers on her projects. And when we ran it through, I said, you're losing money every job. Your cash flow can, will never be able to keep up with that.

A negative cash flow is a negative cash flow. And we've already talked about cash flow here, but if you are not making profit on your projects, you'll never be able to sustain that. You can't bring in enough revenue for it. You can't outrun that train ever.

That's very true. That's very true. And if you have a team of maybe one or two or three or more.

and then you're the kind of like the captain behind all the decisions. When you crunch the numbers, then we have kind of like, as I said, different services that make us more money. Hopefully you are in that category. And then some services that they don't make us that much money. So that becomes, again, a lot of questions comes up. Sometimes we use those low margin activities as a funnel, right? We are like, know what, we are okay to break even on these services, but.

Zahra Carol Baghdadi (30:38.23)

we know that these clients or services are going to convert into our like bigger money making machine. So as a CFO, I'm good with that. But then if you, if we crunch the numbers and you're like, you know what, I just realized these services are not making much money and the clients are not coming back or not converting to bigger offers and

me as a decision maker, I'm actually asking myself or marketing people to pump those services out, like to off to market those services and they are not making me money. And that that would be another aha moment for everybody. Why? Why would I do that?

Why am I bothering to do this? Yeah, absolutely. And I think that's something that, yeah, like you can almost bang your head against the wall sometimes on this. like, you know, because it seems, it sounds obvious to say this, but sometimes we're not actually looking that closely at it. And we assume that, I have to offer that service, whatever that service is, I have to offer that.

To your point, if it's not converting into something bigger and you're not making money on it, what's the value for you as a business owner in that? Back in the days when I used to work at Walmart, we used to sell coffee that we were the cheapest places to get coffee. And I'm talking like, this is when Walmart like first came to Canada, which was back in the, I think early to mid nineties. That was one of my first jobs. And my mom would always ask me to pick up coffee because she was like, I don't know how they do it, but it is the, they're like half the price of anywhere else.

And of course I had taken some economics courses and like, it's called a loss leader, mom. And a loss leader is something where you intentionally either break even, sell it at cost, sell for a low margin or sometimes even lose money on it because who goes to Walmart just to buy coffee? They're going to walk out with something else. You are going to make that money back. So if you've got that item that

Shauna Lynn Simon (32:32.194)

Bring someone in the door that you know, if I get them in the door, I'm going to sell them on something else. Even if your conversion rate isn't 100%, if it's a high enough conversion rate, you're going to make that money back. No problem. But if you don't have anything that if this is your top tier item that you're selling and they're not converting to anything else and you're losing money on it, why are you offering it in the first place?

Yes, that's very true. Another story that some of the CFO Office Hours participants tell us last week was she isn't actually an interior designer. She has this low value offer that comes and visits your space, like virtually or in person if you're in the same city. She only charges for the hour that she spends like

She's okay with just covering her costs for that visit or the hour. And then as again, a loss leader or almost a breakeven leader because she's not losing much money on it. But then because she provides so much value in that meeting or that visit itself, the clients almost are converting at 95 % rate. So I'm like, okay, she can even just ignore charging for it because she has a very high conversion rate.

But to the contrary, if she would have just made all these visits and I don't know, paid for Uber or gas or whatever, and then go to a client's house and then nobody's converting and everybody's just taking advantage of the offers that she has, then that becomes a lot of tears and sweats for nothing.

Yeah, and I think, you know, in listening to what you're saying and, you know, the things we've been talking about today, I think one of the challenges that a lot of business owners tend to face.

Shauna Lynn Simon (34:13.005)

when it comes to these things that we're talking about is we've got an emotional attachment to these services sometimes, right? So to tell someone, you can't offer that service, but I love doing that service, but I have to do that service. Like I remember when I started out in my first business, which was my home staging business. And I remember saying like, I love it so much. I would do it for free. That doesn't mean I should. That's a fast track to burnout to do it for free.

But that's the problem though. Sometimes we love doing it so much that we're I really want to do that service. And so that's where we kind of get stuck. Like, and there's these, I'm not, we're not even gonna get into the whole psychology and mindset of like, but I can't charge more. I can't do this, whatever. Like that's a whole other episode. We've got about six episodes on them. Go and check them out. But I think that it sounds cold of us to be talking in terms of numbers and will the numbers say we need to get rid of this service. And it's not always that black and white or that easy.

But I like that you've talked about some things like, well, we can raise our prices, we can cut our costs somehow, we can find other ways to be able to keep that service. The point is it's important to know whether or not that service is making you money and whether or not it's valuable because that allows you, I think, to ask those harder questions of why am I offering this service and what am I serving here and reframe it so you can turn it into something that's actually profitable.

Amazing. I love that refrain. And I agree, we are passionate entrepreneurs, right? So we turned our passion, hopefully, to something that is making us money. So there is no question about like, really love what we do. But I want everybody to also think about, yes, I can run it for a month or two months or six months, or maybe not charge anybody because I love it so much. But then this needs to be sustainable. I need to kind of like offer more and more and more of it to the world.

And if it's making you money, you can do more of it. So that's how I kind of also want to reframe it. But if it doesn't make you money, you have to turn off the tab at some point, right?

Shauna Lynn Simon (36:13.262)

Yeah, that makes sense. Okay, so we've covered two of the three that we're planning on talking about here. Before we talk about the third one, we're going to take this short break. We'll be right back after this quick message.

All right, welcome back to the Real Women Real Business podcast. And we are talking about the three numbers that you should really be paying attention to in your business in order to ensure that you are not flying blind. We want to be financially sound here. We want to actually pay attention to some things. We're not turning you into an accountant or a bookkeeper or anything overly fancy. We're talking about some important numbers here. And so I want to know

So we've already talked about cash flow is one, profit margin is the other one. So what's the third one that we're missing out on? Because we've already said it's not revenue. So it's not that vanity number that we talked about. So what's that third one that we should be paying attention to?

The third number that I want everybody to pay attention to, which is almost as a result of like number one and two, is your burn rate. It's a fancy complex finance word for saying how fast you're actually consuming cash relative to growth, right? So we are getting a little complex here as business owners, but I'm going to simplify it as much as I can.

Zahra Carol Baghdadi (38:16.174)

What does the burn rate mean? If I'm in a growth mode, right? So I need to go spend money on marketing, hire the team. If I'm providing products, probably a bigger facility, et cetera, et cetera But if you want to focus on maybe more service-based businesses, then I need to kind of spend money relative to growth because then I have to kind of become bigger, right? So that's obvious. But then paying for those growths,

is going to cost us money and we have to pay cash, right? So that's one side of this equation. The other side is how fast am I actually growing, right? So I find like paying, paying, paying, paying for that growth, but then the revenue is not catching up to how fast I'm spending. Then again, I'm going to be in this cash hole, which we talked about. So knowing that how fast you burn money is also very crucial.

because then it kind of tells you, are you hiring too early? Or are you spending your marketing dollar wise, right? So we kind of talked about that, doing that surgery, knowing all these numbers is gonna like prompt a lot of questions that come to your mind.

That's interesting. I think that, you know, we kind of touched on this earlier that so many people are often making these excuses of like, well, this is I'm growing therefore, you know, it makes sense that my cash flow is tight, that my profit margins are low because this is all just a part of growth as you do it. But there should be a plan to stop doing that. at what point do things start evening out? At what point does it start?

to actually pay off or are we just growing for growth sake? In which case that's, it's not, again, it's not necessarily the most profitable way to do things. And, you know, I actually teach this constantly that I see people constantly trying to throw employees at the problem. I'm gonna hire more and that's going to solve my problems. But having more people doing inefficient work or unprofitable work doesn't solve the problem.

Shauna Lynn Simon (40:27.458)

but because we're so busy as business owners, we're wearing a lot of hats here and we're taking a lot of things on. so it always seems like, I feel like most people think that the solution to growth is I need to just hire more. But what you're saying is that sometimes that's not necessarily the right decision in growth. So how does burn rate tell us this? How do we know, like, when should I be hiring? When should I be investing? When should I be expanding some of my offers? When should I be investing in like,

know, new equipment, new warehouse, new truck, you know, whatever this looks like. How does the burn rate tell you that those answers?

Yeah, that's fantastic question. maybe let's define how to use it in the first place. So a rate, is it a percentage? Is it a dollar? So definitely burn rate is dollars. Let's say you have, when you look at your bank account at the beginning of February, we are only five days in. Let's say you had $100,000 in the bank account. Fingers crossed you had that. And then you're like, oh, my burn rate, I crunched the numbers. Burn rate means how much am I spending and consuming cash and how fast, right? So let's say your burn rate

25 grand a month. So if you divide the hundred thousand by 25,000 that you're bearing, right, so it means you only have four more months to go, not considering how much you bring in, right? So then that tells us if I only have four more months to go, if I hire today, that only increases my burn rate, right?

again brings a lot of questions of the timing of that cash flow and the decisions that you need to make. Should I hire now and then hopefully by the new sales hire I'm going to increase my revenue so that cashing the bank is going to go higher relative to that hiring then these four months becomes extended and becomes five months because then I'm bringing more money. Or to the contrary if I'm only sustainable for four months

Zahra Carol Baghdadi (42:28.632)

can I maybe revise the hiring decision to the later, right? So, and then make my cash balance a bit more stronger now. So just knowing how sustainable that cash is, is gonna tell us a lot of things.

That's important because I think, well, I'm short on cash, so I can't afford to hire. But then if I don't hire, I don't have capacity. So it's this constant loop that we're in sometimes. But we have to be able to see the path to more revenue with that new hire. So what does that path actually look like? So it could be.

You could be hiring someone, let's say you're an interior designer, you hire another designer who's going to go out and be able to lead their own projects. So sure, that should be able to lead to obviously more revenue. Or maybe it's a matter of investing in a particular marketing campaign that's supposed to bring in more money. So that's gonna lead to more revenue. So those are kind of obvious ones, but then there's other ones like, should I hire a bookkeeper this month? Or should I hire an admin this month? Or should I?

invest in, again, you know, talking about like investing in a particular software or another service or whatever that looks like, you have to break it down into what that path to revenue looks like because it's not always black and white of why hire this person, they're able to go out for billable hours, therefore I'm going to make more money. Well, what is the hiring the admin frees up your time, you're now able to go out and make more money. So it does make you money, but only if you're using that time properly. If you're working

70 hours a week and you're hiring the admin so you can work a solid 50 hours a week, you're not making any more money. You're definitely saving your health, don't get me wrong. But what is your path to revenue there? You still have a capacity issue, you still have a pricing issue potentially, there's still other things at play there. So I like using that burn rate to be able to see, like, so in making these decisions, I need to make sure that I have enough of a reserve to be able to...

Shauna Lynn Simon (44:28.376)

afford them and then if they're going to start making me money, at what point am going to see where they start making me money so that I know that this money is actually going to survive this.

Yeah, yeah, definitely burn rate and what gives us in terms of the insight that provides us is like really super future looking like forward looking, right? So if I know that in five months, I'm going to be burned to the ground, which is what it's called, right? Burn rate. then I'm like, should, what are the decisions I can make today that proline that like five months to six months to eventually maybe never, right? So I'm always constantly are going to have cash and all of that. So then it kind of tells us the financial health of the business.

How sustainable am I? How long am I sustainable for? And then kind of like gives you insights about the decisions you need to make today, right? Because the entire episodes I wanted us to get in from the reactive mode to a proactive mode, right? So we need to kind of have the numbers today to be able to make those decisions. And burn rate is definitely one of them.

Love this. so can you maybe share an example where someone has actually, like we've talked about how, how people that you've worked with have understood their numbers better, but how would they use that data to actually change the trajectory of their business? Can you share an example about what this looks like in, in real practice? Cause I know what ends up happening whenever I do a financial type of episode, people are like, that sounds great in theory. That sounds great for you, but can we talk about like how this actually works for a real business owner?

Absolutely so first I kind of simplify everything with all my clients to a point that couple of them actually are loving their numbers more than ever and in particular two of them they come to meetings having a spreadsheet prepared ahead of time I'm like my gosh

Shauna Lynn Simon (46:20.438)

Proud mama moment there yeah exactly

I'm like, wow, this is a very, very massive change from the day one we started working together. But how it looks like for some of the businesses I currently work with. So one of them in particular, when we started crunching the numbers, we discovered two things. So we looked at gross margin, right? For each, that was a product-based business. So for each products that they are offering. And we realized pricing was a big problem.

Right? With all the money that she was bringing in at that gross margin, we couldn't really keep the business going until maybe she not to go get a big loan. But even with the loan, it wasn't sustainable because that pricing was a problem to begin with. So when you look at your finances, I always say you have two things that are really, really telling. So one is your revenue, right? Which tells how many clients we should bring, what the pricing looks like.

And then the rest of it is all your costs, right? Cost is more controllable. I know with the economic changes and inflation might not be as much, but again, you can control a lot of your costs. When it comes to revenue, it's dictated by customer demand, marketing effort, a lot of other things that is in your control, but a little outside of your control. So what we did for that client, we definitely looked at the opportunity to grow revenue, which wasn't there as much.

even with so many creative ways, but we realized cost was a problem. So we worked on the, we worked on the costing and then we kind of increased the prices a bit to the point that we could. So I don't want everybody to be overwhelmed, but if you start with those three numbers, even with one of them, like if you just start with that cash flow timing and then go deeper, ask yourself questions. I think you're going to get a lot out of that.

Shauna Lynn Simon (48:16.94)

I like that. And think that that keeps it bit more manageable and simplified. I think we might have intimidated people just a smidge with some of the profit margin and burn rate talk. But I like how you kind of break it down. Let's just start with the cash flow here. And then these Office Hours, these CFO Office Hours that you offer, that's open to anyone to come to.

Yeah, they're open to anyone. There is a link on the website. You can just sign up. You can come with all your questions or you can just even sit in. How it's structured is people come in, they have their active businesses, they have all these challenges and questions and then they have me on the call live and then we kind of go through questions and challenges and we really dive deep. know finances might be a little private for some people but because it's business.

The gathering is very inclusive and definitely we appreciate all the privacy. And then the recordings are going to be there after the sessions and you're going to have me for a couple of emails throughout the month.

Yeah, that's amazing. Okay, so we'll definitely make sure that that link is in our show notes as well. Because if you've got some questions about numbers, this is a great opportunity in a very non intimidating kind of setting to get a bit more clarity on things and see where you're at. I know in a lot of cases when I help people with their numbers and I'm

I'm not doing a fraction of what you're doing, but it does come up with some of my coaching clients. Sometimes they're surprised to know they're actually in better shape than they think they are. They just aren't aware because they haven't been paying attention to things. So it doesn't always have to be quite as scary as it sounds or as something that we've given some pretty extreme examples on here on today's episode. But there's often times where you're actually performing better than you think you are or that cash flow challenge that you're facing.

Shauna Lynn Simon (50:06.156)

If we can pinpoint where it's coming from and eliminate the issue somehow, you know, it's amazing how that can really provide so much relief, I think, for business owners. So I highly, highly recommend checking out Zahra's CFO Office Hours and see what you can gain from it. If nothing else, just sit in. Like you said, you can sit in, you can be a fly on the wall for one month just to kind of get your bearings and get you to feel for it. I mean, who doesn't have some questions about numbers and

and wants more clarity on them. think no one enjoys that feeling of where the bank account feels like it's practically hitting the bottom every single month. you're constantly, like you said, by payments that are kind of like, didn't expect to do this. my favorite, you get paid a deposit for a project, the project gets canceled and you have to refund that deposit. like, but I already spent it. Like now what do? Right? So some of these, and I get it, know,

Whatever trajectory you're on, if you're in growth mode, I understand it is so difficult to like, you got to get caught up in order to get ahead. And that can feel like, you know, running on a treadmill sometimes. But I think that Zahra can definitely help out. So wonderful. So if there is one thing that they're going to that people are going to take away from this episode, we already know like, start with your cash flow. We got that part of it. But there's just like one tip that we gave here.

that you're like, you take nothing else away from this, just remember this one thing, what would you like them to remember?

I definitely want them to remember that we are working on a muscle that maybe we didn't work on it before. Like when you go to the gym and you're like, know what, my upper body is really weak. I want to lift some weights and then kind of make it a stronger. And that's, want everybody's 2026 be. Like if financial confidence muscle is not something that you have worked on before, or you just started working on it, be open, right? So questions come up, confusions come up, but the whole goal is to get

Zahra Carol Baghdadi (52:03.568)

you out of chaos or those surprises and really work on the financial confidence muscle. So yeah, be open and receive. That's all I wanted to leave you with.

I love that. It's a muscle. You're just building up a muscle here. And who doesn't want to build more muscles? cannot thank you enough for joining us on the show today and for sharing so many great insights and really breaking it down so clearly and concisely. Truly, I appreciate it. Thank you.

Thank you so much for having me. This was really great.

Thank you. And if you're listening to this episode and what we're saying here is resonating with you, I hope that you will continue to tune in each week. We drop new episodes every Tuesday morning at 7 a.m. Eastern time. And please allow myself and my guests to continue to be a part of your journey. Don't forget to leave us a review or subscribe to us wherever you get your podcast. And until next time, keep thriving.