Lil Roberts co-founded Xendoo in 2017, a cloud-based accounting and bookkeeping company for businesses with less than 20 employees. Xendoo was founded because she believed too many small businesses just operate from their checkbook and don’t pay enough attention to their books and records. Xendoo offers these companies fixed fee options to lift this responsibility from owners, which she says actually saves them money. She’s clearly onto
something, because the company has grown rapidly.
Working with many small businesses over the past few years, she’s seen some common mistakes and misconceptions. She’s particularly passionate about is the importance of balancing cashflow with profitability. She has seen many businesses that are overall profitable, but still run out of cash and go out of business.
Lil joins The Savvy Entrepreneur radio show to discuss the concepts of cashflow vs profitability, and then shares some tips to make sure your business stays profitable AND has healthy cashflow! Below is a transcript of the interview. Or, you can listen to an on-demand version here via podcast, or here via YouTube.
Doris Nagel
Welcome to The Savvy Entrepreneur show! We’re broadcasting here from the Greater Chicago Milwaukee area.
I’m your host, Doris Nagel, and I’m a crazy entrepreneur. I also love helping other entrepreneurs. I’ve counseled lots of startups and small businesses as part of my law and consulting practice over the past 30 years. And I’ve started or helped start at least nine different businesses.
I’ve seen a lot of mistakes, and I’ve made a lot of mistakes.
The show has two goals: to share helpful information and resources and second, to inspire entrepreneurs, hopefully make your journey as an entrepreneur faster and easier, and maybe just a little bit more fun.
As always, I welcome your comments, questions, suggestions, so email me at dnagel@lakesradio.org.
So without further ado, I’d like to introduce my guest for today, Lil Roberts, who joins us by phone all the way from Florida.
She’s the CEO and founder of a company called Xendoo, which specializes in online bookkeeping and accounting, focused on small business owners with less than 20 employees. According to Lil, Xendoo leverages technology and proprietary software to increase the productivity and traditional workforce of small companies buy some 500%. The company has received a number of awards, including most recently South Florida business Journal’s 2020 H. Wayne Heizengay startup award, as well as numerous other awards for startups and small businesses.
Now just a couple of words about Lil. She’s a South Florida native, and prides herself on building customer centric companies built on teamwork, technology and integrity. She’s a serial entrepreneur with a passion for small business, and is known as an innovator with the enviable ability to foresee market trends. She successfully exited from the manufacturing industry, after which she founded Xendoo, a cloud based FinTech company, and it’s based in Fort Lauderdale. She appeared on the premiere episode of CNBC’s the job interview. She’s an active member of the South Florida chapter of the Global Entrepreneurs Organization. She calls herself a lifelong learner, and fosters a professional working environment where people have the opportunity to continuously grow and develop. Sounds like a fun place to work!
Lil, I can’t wait to hear more about it. Thanks so much for being on the show today. Welcome to The Savvy Entrepreneur show!
Lil Roberts 3:43
Thank you, Doris. And great honor and pleasure to be here with you today. So thank you so much for having me.
Doris Nagel 3:49
I think the place to start is for listeners to hear a little bit more about how you started your company. Your bio says you left the manufacturing industry. But how did you go from that to deciding to start a fintech company?
Lil Roberts 4:10
Like yourself, Doris, I’ve had eight or nine businesses, and they’ve all been in different industries. The last time I worked for somebody was in the early 80s. And as they say about entrepreneurs, we’re unemployable. We see the world through different eyes. I’m sure all your listeners out there relate to that — we walk into places and we see a problem, and we want to solve the problem. We probably all took apart our alarm clocks and put them back together just to see how they ticked!.
But I’ve done product businesses, I’ve done system integration businesses, and then I went into the manufacturing space — I just love business, and especially small business.
I sold my last company in 2015. It was in print manufacturing, which has really become a commodity industry, in a race to the bottom for the lowest price. I watched technology basically decimate the industry. I was able to get a successful exit, by re-engineering the business over and over and over again, because there’s always customers for your business. It’s a matter of how you engineer the company and what solution you’re providing. And then is it a big pond to customers or a smaller pond to customers? And it’s figuring all that out, right? As technology changes, all industries change.
When I exited that business, I asked myself what do I want to do next? What’s the next business that I want to do. I knew I had to focus on small business, because I’m like you, I just love it, I bleed small business. All of us small business owners out there, you know, we’re the backbone of America, right? We employ collectively the largest group of people. And when I say small business, I’m talking about 50 million in size and smaller. And for me, small business really is 15 million down to 100,000 or 200,000 a year in gross revenue.
I knew that there was a gap for small business owners to have accurate and timely financials delivered to you for a fair price. I wanted to be part of reshaping an industry with technology by bringing transparency to it, by bringing accessibility to it for small business owners. And by doing that through a technology platform.
Doris Nagel 6:37
Certainly as companies get started, they need lots of different kinds of help, including tax advice, accounting, bookkeeping, finance, the whole gamut of things financial. It’s certainly something that a lot of entrepreneurs either don’t know enough about to do themselves, or know enough to maybe be a little dangerous. In some cases, maybe they do know about it, but it’s not really the best and best use of their time, right?
Lil Roberts 7:12
100%. And it’s not the sexy thing, right? The fun part of the business is where you’re delivering a product or building a product or taking care of the customer. And that’s where we business owners and entrepreneurs tend to spend our time.
The financials always get put to the backburner. A big reason for that is because your monthly financials are the look back, it’s the scorecard of how you did. Whereas most people would prefer to focus on forging forward. But, you really need to take a look back at what your financials were for the last month, so you can tweak and see how you can do better next month and see what your business needs.
Doris Nagel 7:59
So what makes Xendoo’s services unique? Is it the model, the pricing model, or the online platform, or some combination of that, or something else?
Lil Roberts 8:12
I think it’s a lot of little things. At the high level we are, what we feel is that we are bringing transparency and accessibility to the small business owner by offering a flat rate price for the package. So you have full visibility on what you’re getting. And we deliver with accountability, no pun intended. We deliver our financials by the fifth business day of the next month, which is really unprecedented in the industry. Even our online competitors, they deliver by the 15th. And it’s through our proprietary software, and our workflow processes that for 65% of our customers we deliver by the fifth business day. But what I feel is the unique ingredient is that we’re customer obsessed, in an industry when oftentimes customers are overlooked and underserved. Traditionally, in the accounting industry, customer service is not what you think of when you think of. And we’re leading with customer service, financial peace of mind. And we do that through technology, of course. But really what we deliver is financial peace of mind.
Doris Nagel 9:31
I’ve worked with a number of startup businesses, and a lot of them acknowledge they need maybe a part time bookkeeper. And usually what they look for is maybe a stay at home mom who was a CPA or an accountant. Maybe it’s a retired person, maybe it’s somebody who has this as their business model and they work with a handful of companies. The challenge with that I see is really twofold. One, it’s difficult with that model to scale as the business hopefully grows.
And the second is that it’s often difficult to be proactive in identifying issues, because I think a lot of those folks seem to view their job is more clerical. It sounds like you look at the gamut. Yes, there’s data entry and forms to be filled out. But there’s really a role almost for a part-time CFO kind of position, someone that takes on a much more strategic, much more proactive role. And I’m guessing that your business may be able to help fill a couple of those gaps there.
Lil Roberts 11:04
You’re right, we don’t do the fractional CFO model. What we do is the monthly financials, the profit and loss balance sheet, and then the tax return at a flat rate price. But you hit it on the head that people will go out, and they’ll find a retired CPA or a work at home mom or dad, or just somebody who does bookkeeping. And typically they’re going pay a minimum of $40 an hour, and spend a few hours a week, so it’s going to cost say $500- $600 a month.
But what they’re missing out on is that they’re missing out on having the CPA tax advice and strategy throughout the planning, and maximizing their tax savings. If somebody’s just doing bookkeeping, and not doing it through a tax saving lens, then they’re going to leave money on the table, and also how they can use money that may be spent towards taxes, and use that to invest in the business. So there’s a lot of opportunities there. But you know, the bigger picture is that there’s so many business owners that don’t do any of it. They just don’t even do their books, until they think about their books in March when they want to do their taxes. And that’s when they leave a lot of money on the table.
Doris Nagel 12:18
How has your business grown and changed since it started?
Lil Roberts 12:24
We started in late 2017, and we’ve doubled since then. And even with a pandemic, we’re up 30% this year. We’re a VC backed company. The founder of AOL is an investor in our company, as well as Jason Calacanis, who was an early investor in Uber and Calm and Robin Hood, and also Deep Work out of Florida, a great VC company, is an investor. Our job is to scale and grow. My personal goal is to scale to 15,000 customers across America. Right now, we have customers in 45 of the 50 states. But you know, what the real my real goal here is, yes, we want to have 15,000 customers, but every business owner that comes our way, Doris, we want to help them whether they’re a fit for us or not, if they happen to stop by us on their journey, we want to make sure that we help them in any way that we can, which could be just a referral of some kind of technology that they may need for their business, or just some information that they need.
Doris Nagel 13:30
You made a point that I I want to expand on. You said “whether they’re a fit for us or not.” What kind of businesses are a good fit for these kinds of services, and which ones might not be?
Lil Roberts 13:46
The top two groups of customers that we have are e commerce businesses, because a lot of traditional accounting companies aren’t as familiar with how e commerce businesses function and all the tech stacks that they have as integrations. We also have a lot of professional services, which covers a wide gamut. But we have a whole range of the craziest businesses all across America. I just love it. It is so amazing!
We have a guy who buys books by the truckload, by the semi, and he sells on Amazon, he takes the books that he thinks will sell, you know, from libraries or estate sales.
We have a couple of different TV shows as our customers. We have a car broker that sets up the shoots for any kind of car that’s needed on a movie set. And we have all your standard everyday businesses, like cleaning companies and pool services and HVAC and and you name it, we have it. We have a lot of gyms, and some hospitality. So it’s across the board. It’s amazing to see how the entrepreneurs of the United States build and find businesses, it’s truly fascinating.
Doris Nagel 15:18
Are there customers that might not be a good fit?
Lil Roberts 15:21
A law firm that’s doing escrows or trusts that wouldn’t be a fit for us. Somebody who wants us to pay their bills — and I don’t recommend small businesses outsourcing paying their bills, I see way too many business owners that have been embezzled. But companies that want us to chase receivables, although we have a technology solution with one of our partners for people that want to improve their receivables, that is an automated way that just reminds customers to pay and it actually works. But Xendoo doesn’t chase receivables, and we don’t pay bills. And if they’re a construction company doing job costing per project, they’re not a fit for us, either. But if they’re a construction company, or a real estate investor, that’s buying and flipping, they’re fit for us. So just about any business with less than 20 employees are a fit.
Doris Nagel 16:17
You must have had businesses who probably graduated from your services?
Lil Roberts 16:26
Yes, from time to time we do. Typically when they get past 15 million in top line revenue, they’re gonna have their own internal employee. If it’s e-commerce, the number could be higher, because if you have 15 million in e commerce revenue, you may only have eight or 10 employees.
But all growing businesses eventually reach a point where they bring everything in house. But we’ve had many of businesses that have reached that point where they bring certain things in house, but they still want us to take a look at the books, it’s that second set of eyes, it’s making sure that everything’s in proper order. It’s a check and balance system for them. And then also they need their taxes done. So even if they bring it in house, they may still need us to take care of their taxes.
Doris Nagel 17:06
It’s a great model, and I’m sure there are businesses who have been with you for quite a long time.
Lil Roberts 17:14
Yes, we’ve been really lucky. You know, especially during the pandemic, there’s been a lot of very hard stories. But we’ve been really blessed that the majority of our customers have navigated the waters of the pandemic, they have stayed in business, they have found ways to re- engineer their business to have greater profitability and to adapt and adopt what they need to during this time. The resilience of small business, the heartbeat of it, is just amazing. To be part of their journey, it’s truly an honor.
Doris Nagel 17:54
It’s certainly fun to watch small businesses, who are way more nimble than big companies, in most cases.
Lil Roberts 18:15
So true. A lot of event companies have, you know, they pivoted, and they’ve become logistics companies, and they’ve moved into personal protection. You find a way, right, that’s what the entrepreneurial world is. There’s probably many people that are listening right now that it’s resonating with them — they had to do what they needed to do to survive. I always say be water, right? If you could be water, water finds a way. And, that’s it, you just got to keep moving.
Doris Nagel 18:50
You know, I’m just thinking about one of my clients who I spoke with a couple days ago. It’s a floral shop, things have been a little slow for the flower business. Although there have been sadly more than our share of funerals. But there just haven’t been big weddings and big corporate gatherings and other kinds of things like debutante balls and proms and the like. So she’s branched out into candles, gourmet food and chocolates, and as a result has been partnering with other local companies. I give kudos to her, you know, she saw the writing on the wall and decided to do something about it. Will this be successful? Who knows, but I’m guessing that even if it’s not, she’ll probably think of some other options. Kudos to her, right?
Lil Roberts 19:43
Oh, totally. It’s what all true entrepreneurs have — that outlook that the glass is overflowing, and at the core of it, it doesn’t matter what business you’re in. We’re all the same, right? All business owners. They’re all positive people. wanting to do something that is great for customers and take care of their family and take care of their work family. And it’s a beautiful thing.
Doris Nagel 20:10
Yes, it is. Let’s switch gears a bit. I know today we wanted to focus particularly on cashflow versus profitability, which is a topic I know you’re passionate about. And I’m sure that you’re passionate about for a reason. So first, let’s just make sure everybody who’s listening understands the concepts. What is cash flow? And what is profitability?
Lil Roberts 21:09
Yes, and then I’ll share with you why I’m so passionate about about it, and I think you’ll feel the same. Cash flow represents the cash coming in and out in the business. So when you have cash flow coming in, it means that there’s money there for you to pay your bills at that moment. But it doesn’t tell you if the company is profitable. Profitability is the understanding of knowing whether you making a profit on what you’re doing. Is there excess money after you pay the expenses, your fixed expenses and your variable expenses?
Doris Nagel 21:54
I want to make we’re clear on definitions. I’m no accountant, but there are different definitions of profit — there’s gross profit, and there’s net profit and net profit after taxes. So when you talk about profitability today, which measure of profitability are you focusing on?
Lil Roberts 22:16
Net profit. Before you take out for depreciation amortization. Let’s say you have $100,000 in sales and your expenses, your cost of goods were $20,000. And your fixed expenses and payroll was $70,000. So that equals $90,000. So now you have a net profit of $10,000 — 10%. Before you pay tax. A business has to be profitable, you know, and cash is the oxygen. But you have to have a profit to be healthy too. So if a business doesn’t have profit, so if it’s a business model that’s not based on earning a profit, then cash is just the oxygen, you’re living on an oxygen tank. And when the oxygen tank runs out, for whatever reason, you know, you’re not going to breathe. You have to have a healthy engine running. We see both instances where people have cash flow, but they’re not profitable, and those where they’re very profitable, but they’re starving for cash.
Doris Nagel 23:36
I think that segues to why you’re passionate about this, because I have a feeling you’ve got some great stories to share.
Lil Roberts 23:45
You know, at a high level, there is a statistic that is out there that is staggering, and very sad to me. And it’s something that we want to be part of changing. The statistic is from US Bank is that 92% of businesses of small businesses with less than 20 employees, they run their business from their bank account. Now, that means those 92% of small businesses don’t do monthly financials or any financials to take a look at the financial health of their business. 30% of small businesses fail every year for just getting up and living. They go out of business, they sell their business, they close a business, all kinds of reasons. And this year unfortunately it will be much greater than that. And of the 30% of small businesses that fail, 82% that fail, were actually profitable. They ran out of cash, and they didn’t have the visibility to know that they were so close, and that their business was actually profitable.
Doris Nagel 25:01
That is heartbreaking! And I’m guessing that just operating from your bank account is different than optimal cash flow management, right?
Lil Roberts 25:15
100%.
Doris Nagel 25:16
Conceptually, cash flow management seems far from just, “Hey, do I have money in my account today to pay my employees? Yes, I do. Oh, good!”
Lil Roberts 25:27
Yes. Look, technology is a blessing and a curse. Because of technology, people have online banking, they can see what’s in their bank, they have apps that show them the revenue, but don’t show them their fixed expenses, or don’t show them the bills that are up and coming.
And so you see one side of the story, and that’s never great, right? And these are not things that small business owners want to think about. I like to say to small business owners that you have to understand your profitability first. You have to understand your business model. And you don’t have to do a fancy spreadsheet or anything like that, you know, one of my favorite things is back of the napkin. You know, when I was vetting out this business model, I did a lot of back of the napkin, because you can do a big spreadsheet, and there can be errors or, you know, formula errors in a spreadsheet. And then now you’re looking at something that you think is one way, but it’s not.
Doris Nagel 26:23
So you just don’t do it. Because it sounds daunting, right?
Lil Roberts 26:27
100%. So there’s a couple of nuggets that the wonderful business owners listening to you could walk away with. Let’s break it down into a couple of things.
Let’s start with a back of the napkin exercise that all small business owners can do. We all need to know what are our fixed expenses. Fixed expenses are things that, if you don’t unlock the door and get one dollar’s worth of business for the month, you’re going to have to pay for regardless. That’s your rent, it’s insurance, it’s phones, it’s all of the other things, like payroll for your team. So it’s important to know how much money do you need just for your fixed expenses. Then you have to look at your variable expenses – what it costs you specifically to make your product.
So let’s say you buy the materials for your product for $100, and you want to make a 30% profit on it. This is the area that I see over and over and over again, that small business owners miss when they’re figuring out their pricing. So if you buy a product for $100, and you want to make 30% profit, most people the answer will be what do you think their answer will be? It’ll be $130. Most people will say that if I want to make 30% profit on $100 product that I bought wholesale,
Doris Nagel 28:48
Yes, because you haven’t covered your fixed and variable expenses.
Lil Roberts 28:53
Even greater than that. When you take what your cost is, you have to use a factor. And if the factor is 1.44, or 1.41, I’ll have to grab my calculator here for 30% profit. So the easy way, and people listening at home can grab their smartphones, and they can say, okay, $130 times point 70 equals $91. It means you shorted yourself, you would have had in order for a 30% profit at $130. You would have had to pay for the goods at $91 to get a 30% profit. And if there’s one nugget to give everyone its to take a look at this. Because if that’s how you’re pricing your goods, you’re leaving money on the table. You have to get to what’s the 30% profit, right? If you take $100 times 1.44 and Office Depot sells these wheels, right? So if you take $144 times point 704, 70% cost, it equals $100.80. And that gives you a 30%. profit.
So it starts right there at the core. If you’re figuring profit, you know, we’re taught in school. Oh, what’s you know what’s 30%? On $100? Oh, that’s $30. So in the 30% off, so if I pay 70, for something, it’s wrong when you’re selling a good, so for all the product businesses listening to us right now, take a look at how you’re marking your products up, if you’re not marking it up with a factor. So 1.44 equals 30%. There are these margin wheels that you can buy online, or you can buy it Office Depot, or any any office supply store to figure out is what if you want to 25% profit, I think that’s 1.36 or 1.31.
But if you’re not doing that, you’re leaving money on the table. It’s about understanding the profitability in your business. One, what do you need to sell your products for to make a profit? And profit equals after you pay for the goods of the profit?
And you need to cover the overhead. Now, here’s where it gets tricky. If your fixed expenses for the month are $10,000, , how much do I need to sell before I start making my profitability? How do you factor that? Well, you have to do that now make some projections. How much in sales do I need to make in order to cover $10,000? If I make sales of $100,000, 10%, off the top is going for my fixed expenses. So now, instead of selling $100,000, if you sell $200,000, now your $10,000 in fixed expenses is only 5%.
So you have to understand what percentage of each sale has to go first to overhead. What do you think you can sell in a month? Then what percentage of each sale has to go to your fixed overhead? And what percentage is your variable cost, which is the cost of your product.
So before you put everything on sale to increase your cash flow, you need to think it through. And here’s where cash flow comes in, and how you can have cash flow but not have profitability. If you start just trying to liquidate all your inventory, sure, you’re going to get a bundle of money in the bank, but that bundle of money in the bank is not necessarily going to allow you to buy more goods. All you’re doing is just kind of being a hamster on a treadmill, if you don’t understand the relationship between your fixed expenses, your variable costs, and what is true profit.
Doris Nagel 32:40
It’s interesting, I have worked with a number of small businesses in the manufacturing space who have done some really low-ball deals, and they do them they claim because it helps with overhead absorption. Is that good idea to do or not?
Lil Roberts 33:03
It’s the old saying about covering your nut, right? Your nut is the amount of money you need to have to cover your expenses. Let’s say you’ll sell an order for $100,000, and $20,000 is the cost of goods and $70,000 is fixed expenses and payroll. So that $100,000 is going to give you $10,000 in profit. Well, now if you picked up this great opportunity get another $20,000 for the inventory that you just want to liquidate because it’s the season, you don’t need to hold this much of a profit margin on it, because you’ve already covered your nut, you’ve got that first 100 grand already covered your expenses and your cost of goods. And so that’s 10 grand in profit. So now this next 20 grand that you sell is just incremental margin.
Doris Nagel 33:55
Which is a good thing.
Lil Roberts 33:56
It’s a great thing. But if you’re running your whole business on that model and you haven’t covered your nut, that’s the recipe for going out of business.
Doris Nagel 34:07
That reminds me of my father shopping at Aldi – that’s a low-cost grocery chain — I don’t know if you have those in Florida. He was trying hard to shop for a family of six, but he was so enamored with the deal that he would fill up his shopping cart with stuff that we never, never ate. So, you’re going broke spending all this money on cheap stuff that you didn’t want. It’s that kind of mentality, right?
Lil Roberts 34:40
It’s the BOGO mentality. You know, I just had this conversation with some friends two weeks ago. BOGOs are designed for people to buy stuff they don’t need, and it’s incremental margin for the companies selling them. And people don’t understand that the most valuable thing you have is money in your pocket, right? Cash is king. Well, a good heart and other altruistic things are important of course, but money the most valuable thing in a business sense. Money in your pocket is important, also in your personal life. So merchants want to get money out of your pocket. It’s the same thing with credit card companies, offering all these different benefits, like earning extra miles or points, for example. They just want you to put the stuff on the cards and then start paying interest, or like American Express doing payment over time. It’s an unbelievable deal for them. And if you check what that interest rate is, it’s ridiculous.
I urge business owners to keep the money, keep the money in your pocket. When somebody offers you a deal, always ask what’s the value of that money? And if the value of that moneyis that you’re going to make a 25% return by paying upfront for something? Well, that’s really good. Because you’re making 2% per month, if that’s a product you need, and you’re going to use no matter what, and you have the cash flow to spend it on it. You just made 25% on your money all day long. Sign us all up for that!
Doris Nagel 36:21
Let’s talk about product pricing, especially when it comes to professional services. I certainly have struggled with this in my own business, and even kind of fought with clients. It’s hard to price those services sometimes because your product is the result of a lot of work for other clients. For a lawyer, the agreement that you can crank out in 15 minutes really isn’t a quarter of an hour, because it’s the result of all the hours you put in with other clients, and building the knowledge base and having resources at your fingertips. How do you apply these concepts for professional service firms?
Lil Roberts 37:25
What you just described is from the practitioner’s mindset. The practitioner thinks, well, you know, they’re getting the benefit of the cumulate effects of helping other clients. That only helped me be smarter to help that client that helped me be smarter to help that client that helped me be smarter to help that client. Why should client number five have to pay for all the other learning from the customer side of it? Why should client number five have to pay for all of that? Because the practitioner got paid every step along the way, right?
Doris Nagel 38:00
Yes, and no. They may have written off a lot of their time. And experience should command a premium. There’s a reason senior partners in firms charge a lot more per hour than junior lawyers.
And I also counter that thinking because that’s not how manufacturing businesses price their products. If they can’t charge for investments they’ve made in tooling and intellectual property, they would go out of business if they priced their product only on what it cost them that day to make it.
Lil Roberts 38:48
Well this is a lively discussion here that I love. And I didn’t say which side of the fence I’m on. I don’t have a dog in the fight either way. What I’m saying is that practitioners are going to look at pricing one way, and clients another way, so there’s a pricing disconnect in a lot of the professional services.
Look, Xendoo is essentially in the professional service space. Technology has come knocking on the door of almost all the professional services. IBM’s Watson says that 70% of all attorneys graduating right now won’t have jobs in 10 years, because technology is replacing them. So unless they are very, very specialized, this sector really need to watch out. The work that is done over and over and over again is not very specialized, and is at risk.
But let’s look at it from both sides. The customer wants to pay what they feel is a fair price. Right? And then the practitioner wants to be paid for that. They feel they have aged like a fine wine. And the customer may think instead it’s like buying off the shelf wine in a box. And if that’s the case, they wouldn’t want to pay like they’re Silver Oak, right? Or Caymus, big bold cabernets.
There is a happy medium amongst it all. And a couple of things need to happen. So you said, well, they probably didn’t get fully paid from all their clients. But in today’s world, in my opinion, I don’t believe there should be receivables. Today, everybody has been conditioned to pay when the service is performed. If you are professional service, and you are sending out receivables to be paid 30/45/60/90 days after the work is done, that’s not fair to you as a business.
Also, lots of times we stand in our own way. For example, maybe as a service provider you should raise your prices. I’m sure, as you coach businesses, you may say to them, maybe you need to raise their prices, because if all their ingredients and all their goods are going up, of course, they need to raise their prices. And it’s their mindset that gets in the way because their customers love them for them. And they’re not gonna walk out the door because they didn’t get the lowest price, but because they can’t find that most amazing lasagna or whatever that business is providing.
Doris Nagel 41:17
I think you’re absolutely right, in terms of receivables or in terms of getting even retainers from clients. Your wine analogy, I think, is extremely apt, because fine wine is not something that you uncork and then drink 60 days later. When you perform a service, it’s about what have you done for me today. The wonderful thing that you did 60 days ago, or 45 days ago, suddenly, not quite so wonderful. And the long hours that were put into to rush to make it happen for clients, not quite as valuable or not as fondly remembered months later. So I think you’re absolutely right, there is a recency effect, particularly when it comes to professional services, that directly correlates to when you need to be paid.
Lil Roberts 42:15
I’m a firm believer in getting paid right away. We tell all of our wonderful customers, get paid. There’s enough technology and everybody’s used to technology, have your tech stack for your business, of how you’re doing business with customers. And look, we’ve seen that through the pandemic, a lot of businesses retooled into a digital format, and a lot of businesses will tell you that they’re more profitable now.
So you have to look at your business every year. I would look at my business as to what we needed to do to be more productive, because it’s also the responsibility of us as business owners, to make sure that we’re keeping up with proper pricing for our customers based on what they can get on the open market. And I think you should raise prices when you can, because we business owners are also entitled to make profit. We’re taking great risks to be in business.
So how do you find the balance the right recipe to marry all that together? I think that it starts with looking at what is your profitability in your business. And then profitability is really just an exercise of what are you buying your product at? Or what is it costing you to deliver your product.
If you’re professional service, your product is time. If your business sells a product, your product is whatever the product is — a bottle of water baseball cap, you know, dinner, whatever it is. Then it’s up to us, as business owners, to always stay on top of what are our costs in our business. How do we trim those costs in our business? Do we have the right pricing to be profitable? And is that pricing market ready or market accepted? And then from there, ask how do I ensure that I’m not going to have to write off lost money from either bad product that we are giving our customers because it was damaged, or missing deadlines, and now we have to give them discounts on professional services.
And that leads into your cash flow. On the topic of businesses with products, many may be profitable, but suffering cash flow. They may have too much money in inventory. Either they’re buying too much inventory, or doing a poor job of managing the inventory. Every industry has a formula of what your turn of inventory should be. With Google, there’s no reason why you can’t understand what your industry turn is. So if your inventory turn should be 20% of your sales, figure out your projected sales and work it out from there. Then on the flip side, avoid having too much inventory, because that’s money sitting out on the street — it’s not in your hands to make money on, because most business owners don’t realize that money itself is a product.
Doris Nagel 45:23
Could you elaborate on that?
Lil Roberts 45:25
Most people think that money is a tool or a mechanism. Actually, money is a product. My last business, was in manufacturing. I didn’t sleep at nigh, unless the business had $350,000 in the bank at all times. And the reason being is that if we live in South Florida, so if there’s a hurricane, I knew that I could cover payroll for you know, a month, and I knew that I had enough money to cover my bills for that time.
Every business has that number, depending on the size of their business, and whatever that number is, that’s your hard stop. Don’t go below it. So if your business needs $10,000, to cover the bills, when there’s 10,000, in the bank, you’re broke, right? But if you have 100,000 in the bank, and you only need $10,000 to cover you, that’s your deck.
Now, what are you doing with that product of $90,000? Do you have an interest bearing accounts? Are you doing something that itself will earn money for you? How can you make money on your money safely? So, maybe you make money on your money buying real estate, maybe you buy a piece of real estate for your business to reside in. You know, there’s lots of ways to make money on money.
But most people don’t look at money as a product until after you sell your business. And now you don’t have any other distractions. And you’re sitting there with hopefully a bucket of money. You think, Oh, boy, what should I do with this bucket? But the bucket is always there – don’t wait until you sell to make your money work.
Doris Nagel 47:11
That’s another great insight. So when should a company think about reaching out for help with their accounting and taxes? And how do they know how to find somebody who’s the right fit to help them?
Lil Roberts 47:39
Let’s break that down into chunks. So, first question, when should they reach out for help? We typically tell a small business owner to wait until your gross sales, your top line sales before expenses, are $20,000 to $25,000 a month, because I never want to spend anybody else’s money that they don’t really have.
And then, we’ll also be able to help you save taxes, because I want our customers who do business with us, whichever plan they choose, that they are getting a return on that. So if they’re in a plan, that’s $300 a month, that’s $3600 a year, I not only want to save them that at a minimum in their taxes, but we want to help them make money on that. Our head of tax is a brilliant guy, forensic. He’ll save people $20,000 — it’s amazing. It’s about making your money work for you in the business and you need that visibility all year long.
I do see business owners that are serial entrepreneurs, and they will start day one, even if they don’t have sales yet. They’ll tell me they wanted to start because they’ve done other businesses, and they hate doing bookkeeping. And they just want to start it from day one and make sure everything’s in proper order. So if you have the money, start day one, if you don’t have the money, and you’re bootstrapping the heck out of it, you want to have your books done as soon as you can afford to do it.
Believe me, it’s an investment that you’re making in your business. It’s an investment that you’re making to have less stress for yourself, to eliminate potential problems in your in your personal partnership, to not have, you know, your wife, your husband, worrying about whether you can go out and buy a house, buy a car, do all the things that you want to do because, you know, as self employed people, we all get dinged when it comes to the banks. They want to see extra documentation on all of us. So, so get your books done as soon as you can.
Doris Nagel 49:58
And how do they find a service provider that’s the right fit for them? What should they look for?
Lil Roberts 50:05
They don’t have to stay local, those days are over. In fact, a lot of people reach out to us and tell us, they don’t want to be local. They want it to be online. But they should look for a company that has the same values that they do. When we do business with anyone, it’s about if them as a person. If listeners listening right now value, customer centric organizations, then make sure whoever you choose is customer centric. And you can tell that by looking at their website, you can tell by calling and talking to them, you know. For example, is there a phone number on the website if they’re a company, and not not just for accounting, but in anything? How many companies nowadays, don’t even talk to you on the phone? They don’t have a phone number on their website.
Doris Nagel 50:58
Some have pop-up chats, though – I’m not always sure how effective that is.
Lil Roberts 51:01
Sometimes potential customers chat with us through pop up chat, or email or text messaging, but it’s really about finding a company that has the same values that you have. Vet them and make sure they’re knowledgeable, and that you feel that the price that you’re paying for the goods and services are in line with what you think it should cost.
Doris Nagel 51:25
If people are interested in learning more about any of the things we’ve talked about today, what’s the best way for them to reach you?
Lil Roberts 51:40
Our companyd is Xendoo, and our website is xendoo.com, or they can email sales@xendoo.com. They can also email me at lil.roberts@xendoo.com. Or, they can always call our number on the website, or they could use the pop up chat. We’d love to chat with them. We live and breathe small business.
Doris Nagel 52:12
Fantastic. Thanks so much for your time and for being on The Savvy Entrepreneur show – I really appreciate it.
Lil Roberts 52:22
Thank you, Doris. Absolute pleasure love spending the time with you and a big hello to all the people in Chicago and Milwaukee.
Doris Nagel 52:32
That is our show for this week, folks. Thanks so much for listening. Thanks again, especially to our guest today, Lil Roberts, founder and CEO of Xendoo, who joined us this week to talk about two important concepts for any business cash flow and profitability.
You can find more helpful information and resources on my website, globalocityservices.com, where there’s a library there blogs, tools, podcasts and other resources.
Be sure to join me again next Saturday at 11am Central noon Eastern when we’ll have another great guest and topic.
But until then, I’m Doris Nagel, wishing you happy entrepreneuring!
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