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There’s a reason it’s called financial planning—you can’t run a business without having a plan when it comes to the finances. Expert Justin Krane, president of Krane Financial Solutions, has worked with small business owners for the past 11 years. He’s heard it all when it comes to companies without a financial plan. Tara Taffera, vice president of editorial services for USGlass magazine parent company Key Media & Research, spoke to Krane recently to get some valuable advice for business owners.
[TT]: First give us some of your background so we know your areas of expertise.
Krane: I started out as a financial advisor about 25 years ago at a Wall Street firm. I worked my way into financial planning and became a Certified Financial Planner® professional. There is an element of that called financial life planning, which is helping people identify what they want out of their life. I started my own firm in 2008 to work with business owners: I love business! I started to realize someone who is an entrepreneur has more control over their financial life and could have a greater potential to fund their personal goals. So I taught myself how to understand financial statements and started working with business owners to help them understand their business goals.
I have worked with a fair amount of product-based business owners—owners who have a staff of people who deliver the service or product they are offering. Some of that has to do with inventory and a lot has to do with hiring other people to deliver the service you are selling. What that means is if you are in [glass and glazing] you have to go buy the stuff then deliver it to customers. That involves putting out cash, and tracking what you just bought. If your gross margin (which is basically the sales price minus the cost to make and deliver what you are selling) is not profitable enough you won’t be able to pay yourself a salary, take money out of your business and live. If you are not tracking any of this you are guessing and making decisions on unknown numbers. And of course labor costs have to be factored in as well.
Business owners know they need to do this but they feel like it is all on them, and they wonder how they can do it and feel like they are in control of what is going on.
[TT]: So what happens when they put these strategies into practice?
Krane: It’s like a glass of wine. It’s like a massage. It’s like feeling the sun hit your face and lying out on the beach. It’s no stress and peace of mind. It’s an amazing cup of coffee.
[TT]: Tell us about the common threads you have found and how you can help them.
Krane: The commonality is that you can’t do everything on your own. You just can’t. You have to create some sort of team of people who can help you. You only have two hands.
Someone may know how to install [glass and glazing] but now he has to figure out how to manage the money.
[TT]: What is the biggest mistake many business owners make when it comes to finances?
Krane: Number one is not having clarity on their numbers. Not tracking drivers of sales and identifying what they are. Thinking that marketing is an expense and not an investment. Not clearly being able to calculate the ROI of investing in their business. Taking too much risk in business and not being smart about it. Managing their cash flow. When to pay, I could go on …
[TT]: Do you work with companies who want to expand into other markets?
Krane: All the time, and this is where it’s all about cash flow management. There is a whole difference between profits and cash. Let’s say you generate cash of $16,000 a month but you now you have to take $5,000 out to live on per month. Now you have ten grand left. How much money do you need to start the new part of the business? If you need 50 grand how quickly can you make money off that? If you can’t make it for five months, then the [glass] part is funding the new part which means you can’t take the five grand out to live on. So you are robbing Peter to pay Paul.
I find a lot of times that companies are in way over their head. They don’t think about the time it will take to get an ROI.
[TT]: Please share a success story or two of a business owner you worked with who realized great results after putting some of your advice into practice.
Krane: Paying down debt by far is a big one, whether its business, credit card or mortgage debt. When you have a plan of what to do with the cash you generate you will have success.
[TT]: Do most business owners you work with have a plan?
Krane: They have a plan in their head but can’t articulate it or narrow it down to four bullets of what they have to do to implement it. If you want to hire another employee, for example, you need to put a plan into place. Make sure there’s enough cash to hire the employee, for example, if its $4,000 per month, set that aside. This means you may not be able to spend the money to redo your website. You have to make a plan.
Krane is one of the financial experts Drew Vass, editor of USGlass magazine’s sister publication DWM magazine, will be speaking to for an article in DWM’s upcoming October issue regarding franchising—and financing.
