Are you an entrepreneur or small business owner with questions about funding your small business? Maybe you are wondering which metrics to track, or whether or not you should take out a loan for your business. If so, stick around—in this webinar, we featured a panel of experts to answer questions about funding your small business.

For this discussion, we were joined by CEOs Jared Hecht of Fundera, Joshua Reeves of ZenPayroll, Matt Rissell of TSheets, and our own Sabrina Parsons of LivePlan and Palo Alto Software. They cover funding for small businesses from the initial funding stage to later stages of growth, and other areas in between.

If you still have questions about your small business financials after the webinar, here are some follow-up bonus tips from Sabrina and Jared, as well as the most common accounting and payroll mistakes to avoid.

The full audio can be listened to above, and the transcript can be found below.

John K. Bates: Good morning and welcome to our CEO panel, “How to Fine-Tune Your Small Business Finances From Funding to Growth” which I think is the direction that we would all like to be going. My name is John Bates. I’m the CEO of Executive Speaking Success and I’m a long-time entrepreneur. I have been an early stage employee at a lot of different internet related companies and back in the dot com day I raised eighty million dollars with three other co-founders and then we had the plug pulled on us and went out of business so I was the poster child for the dot com boom on the way up and a poster child for the dot com boom on the way down. Now I train people in communications and leadership.

I’m here with some really phenomenal CEOs who are going to talk to us today about small business finances from funding to growth. With me on the line is Jared Hecht from Fundera, Sabrina Parsons, the CEO of LivePlan, Joshua Reeves of ZenPayroll and Matt Rissell of TSheets, so welcome, everyone. Jared will you give us a little bit about your entrepreneurial experience. You heard how I went out and got crushed. I’ve also had some successes but we’d love to hear a little bit from each of you so let’s start with you Jared. Tell us a little bit about your entrepreneurial experience.

Jared Hecht: Wonderful. I’ve been an entrepreneur for almost as long as I can remember. It started in college when I started my own music marketing and production company. After college, I was a very early employee at a web company called Tumblr. I joined when there were around seven people there and ran business development there for a little over a year.

After that, I left to go start my own company called GroupMe which a group messaging application available on iPhone and Android and any smart phone as well. We did GroupMe for around three years, turned into a company and ended up selling it to Skype for around eighty million dollars and that was in 2011. Skype became part of Microsoft so I was at Microsoft for two years and then in September of 2013 I left Microsoft and GroupMe to start Fundera which is an online marketplace for small business loans. You can kind of think of it like a kayak for small business.

We launched Fundera in February of 2014 this year and it’s been a wonderful experience helping small businesses ever since we started.

John K. Bates: That’s fantastic. Thank you Jared. Sabrina would you share your experience with us?

Sabrina Parsons: Yeah, thanks. I’m really happy to be a part of this panel. I feel like as the CEO of Palo Alto Software, I’m in a really lucky position where not only am I running a company that’s a fast growth, high tech, I wouldn’t say startup because we’ve been around for a while but LivePlan is really the new direction of our company so LivePlan itself is getting run as a startup, but we get to work with startups and entrepreneurs everyday and help them find their financing and once they’re up and running help them figure out how to keep financially healthy.

I have been involved in startups since I graduated from college in 1996. I grew up in the Bay Area so after college I just headed back there and ’96 was definitely a fun time probably at the same time John was out there, I was out there and had the pleasure of being involved in a lot of startup, help startup Epinions.com, started my own consulting company, moved to London and started a software distribution company, and then ended up here at Palo Alto Software where every day I get to help startups. This is really an exciting panel to be a part of.

John K. Bates: Fantastic. Thank you Sabrina. Joshua, share your experiences with us.

Joshua Reeves: Thanks, John. It’s a pleasure to be on the panel with all of you today. I’m the CEO of ZenPayroll. I’m provider of modern delightful payroll and it really is a privilege especially to speak to all the business owners and accountants on the line. I really think of entrepreneurship as the chance to solve a problem. I will say to the team it’s really thinking about the way things could be, not just the way they should be.

My founders and I started the company about three years ago. We’re all second time entrepreneurs from Stanford and our inspiration really was having run prior startups, personal frustration with using other payroll systems and then really more of a coincidence but each of us have had family that have run payroll for several decades so this is a fifty year mission for us is how we talk about it but if we get to a later on I can also speak to how I was going to do a Ph.D. in neural prosthetics and how that connects to payroll and what we’re doing today.

John K. Bates: Okay, good. All right. That’s good. Make sure that I get that out of you. All right so we want to hear about prosthetics and payroll. Matt will you round it out here?

Matt Rissell: Yeah, thanks John for having me on the panel. It’s a pleasure to be a part of this and I did not try to get a Ph.D. in prosthetics. That was not on my horizon. I’m the CEO of TSheets. We’re a time tracking system. It’s a web-based time tracking system. It’s designed for small and mid size companies and it all started based on a focus of the employees. Our slogan is, “We heart employees,” and everything that we do is designed around usability for the employees.

My background with entrepreneurialism is this is my sixth startup. In the vein of just being fully transparent my last company that I built it was a small business so this might be very relatable for a lot of folks on the call is that it was a small business in a local market and so I wanted funding from a bank and I knew I needed more than what I could get out of the bank. We leveraged absolutely everything and we leveraged everything that we could leverage including I tried to get them to take my dog as a collateral. It turns out they won’t take something with a beating heart as collateral. Then now into TSheets which is a subscription based software with a much different model so again thank you for having us, having me on the panel.

John K. Bates: You’re welcome. All of you you’re welcome and thanks for letting us know a little bit about you. Now I’ve got a question for you listening. We’ve got a poll. We’re going to have four poll questions during the webinar so look at your software, look at your screen and we’re going to ask you the first question. We want to know what best describes you? One, I’m an entrepreneur or in the startup stage of a business. Two, I’m a small business owner or manager. Three, I’m a book keeper, accountant or CPA and other.

I’ll say that one more time. Poll question number one, we’ll have four of these today during the webinar. This is number one. What best describes you? I’m an entrepreneur or in the startup stage of a business. Two, I’m a small business owner or manager. Three, I’m a bookkeeper, accountant or CPA or other. All right so I’m going to give everybody a minute to just wrap that up, click on that panel and let us know.

All right well so we want to jump back into making the best financial decisions which of course is always the goal I would think and I know that all of you on the panel spend pretty much every day gaining insight into what small businesses are struggling with financially and so to start I’d like to touch on the biggest mistakes you see entrepreneurs make when it comes to their finances. Things that people might not even be aware of and things that you have insight into given each of your unique positions.

Josh, you’re working with small business owners every day. What do you think is the biggest mistake that they’re making when it comes to investing in their businesses?

Joshua Reeves: Yeah, great question John. It’s definitely something that we get a lot of exposure to and really just want to share some advice, hopefully some useful insight that we’ve seen from the thousand companies across the many industries that we serve. The biggest mistake I think I would share with you today with all of you on the line is really many businesses trying to do it themselves with a very DIY, do-it-yourself mentality. I think this is really rooted in a lot of amazing heroics that business owners have gone through over the last several decades.

Many business owners now really think about DIY because if they’re short on cash it seems like the easier better option and choice but this is also again how many businesses have been run for decades and business owners and accountants have had to wear twenty different hats and be on their own. In reality this is a very short term way of thinking because your time is really what’s most precious. The DIY mentality can really bog you down and become a burden eventually, plus it can really cost you more time and money in the grand scheme of things.

I just wanted to break down those two pieces real quick the time side and the cost side. On the time side, I mean everyone knows this but your time is really precious. There are actually a lot of tools and technologies available now to really streamline your day and as I said earlier it’s amazing. It’s really a privilege to work with folks like you but business owners and accountants have had to wear twenty different hats for decades and the fact is you don’t have to wear all of them anymore. By freeing up your time it really helps you focus on more important tasks and this can be things ranging from improving the product quality to hiring a great team to rewarding your people to thinking more holistically about customer experience or understanding your competition.

One example in this time savings bucket is it’s a tool called Bill.com. It’s a simple product, maybe many of you are familiar with it already that makes it really easy to basically no longer pay your bills by check. It’s a no-brainer to see that in the future and even today we shouldn’t be writing checks everyday to vendors et cetera. It’s a paperless solution. You can set up automatic payments. It’s syncs directly to your accounting. All that data is given to your accountant. Again the result is significant time savings and getting people away from that manual pain of writing checks throughout the day.

Then the second one here which I eluded to is really all about cost. Again DIY can feel like a cost savings because you’re not actually paying anyone but in the grand scheme of things again your time is money. These tools can really streamline things that are not important for you to do in a manual way and that are not really a core part of your business. It helps you again focus on things that could be more important. I think of it as a way to basically have someone else or some other tool do the chores part of your business. There’s definitely things you have to do yourself but it’s not everything.

As one example relevant to my world, forty percent of businesses today in the US do payroll manually. This would be cool and okay if it was done once a year, but payroll is done every two weeks. You have all these filings, paperwork, payments so that’s really why we started ZenPayroll. For example in our case, a five person company it’s forty-five dollars a month for full service, so just one example of that cost savings that could result given the again amount of time you’re investing.

In summary, DIY can perhaps seem like the easy choice but my advice is don’t fall prey to that mentality, think longer term and realize your time is precious. There are probably manual things you are doing which a tool can do for you. That can save you a lot of time and money. It really is a profound shift in the way that a business is run. I love telling it to folks.

John K. Bates: You know Josh—

Joshua Reeves: You don’t have to wear those twenty hats any longer.

John K. Bates: Josh, it reminds me of when I was doing web sites back in the day in 2000 and 1998 and instead of going and being able to buy a shopping cart you had to code the shopping cart from scratch. Now I think what I hear you saying is there are a lot of things that you can do that have gone far beyond just creating a website. Now it’s your whole life like you could get Bill.com to do this part. You could get ZenPayroll to do that part. They’re going to do it better because they’re focused on it rather than you building everything from scratch. I think that’s a really great point so thank you for that. I definitely hear the analogy in my life.

Joshua Reeves: Yeah, I think the key is it’s not black and white. There’s definitely things that it’s important for the business owner to do. There are some things that are the chores side which we want to—a lot of folks want to help you save your time.

John K. Bates: Yeah, that’s great. Well thank you Josh. Matt we were talking earlier and you mentioned that you noticed that entrepreneurs have trouble knowing which numbers reveal the most about their business’s health. You spoke about the importance of a pro forma. Can you talk a little bit about that? How a small business can best leverage a pro forma to make their business decisions?

Matt Rissell: Yeah, absolutely. It’s a great question. It’s something that is, you know this topic about finances and this topic especially with small business owners and even for accountants on this call because they have several small businesses that usually look to them for advice. It’s a sensitive subject because most of the small businesses out there don’t have millions of dollars in the bank for reserve as just in case or just for a rainy day. They are living in—

John K. Bates: It would be nice but it doesn’t happen.

Matt Rissell: Yeah, there are a few that do, but it’s a little bit of an anomaly. They have to make decisions especially when they’re trying to grow their company that are difficult. One of the things that I’ve done and this was back with my prior company when we were living and dying on just very small margins as we were trying to grow our company with not a lot of cash in the bank. What I did is I learned the art of a pro forma and the value of a pro forma which basically is a forecast. In my particular pro formas that I use I have everything dialed in all the way through my full profit and loss down to cash flow and broken out into high level numbers that I can adjust easily.

The way that I leverage that is when I’m faced with a decision before I go to make the decision and let’s say my executive team and I or my co-founder and I or just myself I get an idea and I think what if we were to do X, Y and Z. Well those X, Y and Z they have a price associated with them that doesn’t just impact this month but typically will impact the next several months. The first thing that I do is I go to my pro forma. I add those numbers in and I look to see what impact that’s going to make on my company and I allow that pro forma to make big decisions for myself and for my company.

One of the mistakes that I see so often is that companies, business owners, entrepreneurs they’ll put that together for an investment situation or for a board but they don’t make it their own. They don’t update it weekly. My recommendation is to know that inside out and backwards. It becomes an extension of you. It becomes an extension of your business and it will help you make good decisions. You’ll see then later what the results are of those decisions when you make them and how it impacts your pro forma. That’s my recommendation.

John K. Bates: That’s a great recommendation Matt. Thank you very much. Now we’ve got another poll question for you. Which metrics do you most rely on to understand your business itself. You heard a little bit from others about that. What do you do? The question is what metrics do you most rely on to understand your business’s health? One, profit and loss statement. Two, revenue. Three, growth rate. Four, pro forma. That should be up on your screen.

Give us an answer and let’s move on to finding working capital. Definitely what we would all like to have more of. When you’re using your run rate to make business decisions which as Matt said you should be then see if you’re going to need working capital in order to make it through the upcoming months. Well if you need it what are you supposed to do? Sabrina, I know you guys work a lot with startups so I’m curious for companies that are just starting out and need capital, what are their best options for funding?

Sabrina Parsons: That’s a great question. I think I want to step back just a little bit first. The first thing is to figure out how much capital you need and I find that both startup companies as well as a company that’s in an ongoing position that’s looking to implement maybe a new product or a new project oftentimes miss a key step in figuring out how much capital they need and that’s the cash flow forecast.

If you don’t know what your cash flow forecast is, you don’t really understand your capital needs. When people go out and fundraise, oftentimes they will think through, well, I’d love to get five million dollars. I can hire a development team. I can do a lot of marketing and sales and that will give me a run rate for two years or I’m going to go get a two hundred and fifty thousand dollar loan, but the reality is most people don’t actually take the discipline to go through the forecasting step and then actually look at a cash flow forecast and understand how negative their cash balance goes depending on how fast they want to grow because then you actually get a lot of information.

It may be that you can make it the first nine months with fifty thousand dollars of capital and that it’s not until your growth really picks up that you need the other two hundred thousand dollars. That’s a really important thing to know because if you can make it the first nine, ten months with fifty thousand dollars you and your founders may be able to put that together very quickly through friends and family at a cheaper financing rate than going out and getting the more traditional capital.

In terms of how do you go out there and find the capital and what are the options, the first thing you have to determine is how much money do I need every month and when do I need it and then you can start to see can I do a credit line, can I get a loan, should I use credit cards or do I really need to start seriously thinking about some institutional fundraising and go out and get angel investments or venture capital investments. If you’re looking for five million dollars, you should be thinking institutional capital. If you’re looking for two hundred thousand dollars, if you can boot strap and get loans you should own a hundred percent of your company.

John K. Bates: That’s great Sabrina. That’s great. Perfect, thank you. Now imagine, I imagine finding working capital Jared is completely a different experience for a startup than an established business and I know that from personal experience so what’s your experience in helping businesses with everyday so far companies that aren’t startups that have been in business for a few years. What are the best options for them to find working capital?

Jared Hecht: In terms of a small business, finding and acquiring working capital, there is a world of opportunity out there. The most obvious place that businesses and or accountants turn to for their small business clients is generally banks, big banks, community banks, you name it. Banks generally provide the cheapest source of capital so when you get a loan from a bank, you’re ultimately going to get the best rates. However the only downside of approaching a bank is that the decline of banks over the course of the past several years ever since our last recession has been abysmally high.

If you look at national banks on average eighty percent of applicants are declined. When you go into a community bank on average fifty percent of applicants are declined. What this has led to is a rise in what we call non-bank alternative lenders. These are lenders who are not traditional banking institutions meaning they do not lend with the deposits of retail investors like ourselves. Instead these are companies that are strictly in business to service small businesses. All they do is provide loans to small businesses.

The only downside about this industry is that it is wildly confusing and difficult to navigate if you are an independent small business owner. Very few people know that there are actually viable options for them beyond the bank and once you do realize that there are viable options for you beyond the bank it’s impossibly difficult to navigate. This is because there are a myriad of loan products out there. There are SBA loans. There are short-term cash flow loans, equipment loans, lines of credit, multi-year term loans. The list goes on and on and on and for every single one of those products there are tens if not hundreds of lenders in the US alone that are servicing and selling those products.

It’s very difficult for a small business owner to actually identify which product is right for my business and which lender will actually provide me the most competitive rate for my business. What we’re doing at Fundera is helping small business owners who are primarily ineligible for these bank loans or simply do not want to deal with the time of applying for a bank loan which can honestly take forty-eight to seventy-two hours of time. I don’t mean like two to three days. I mean if you were going to stay up for two to three days nonstop that’s how long it actually can take to put together all the paperwork necessary for a bank application.

What we’re doing is we’re helping small business owners find and discover their options beyond the bank and ultimately help them secure the best rates for their business. The best options for a small business are largely situational. It generally depends on what the small business is looking for. For instance if they want to purchase equipment and they’re looking for capital to purchase equipment, an equipment loan is best. If a small business generally runs their business off invoices perhaps they want to look into invoice financing. If you’re looking to expand or if you’re looking for working capital in general because you want to buy the location next door to expand your business or you’re looking for marketing dollars that you can grow your customer base, you’re probably best suited for a cash flow or term loan.

The answer is it’s incredibly situational to the needs and desires of a small business owner, but there’s generally it’s our belief that there is a credit product for everybody. It’s just a matter of identifying the right credit product.

John K. Bates: That’s fantastic. I suppose that Fundera has a little bit going on that way.

Jared Hecht: That’s true. We offer multiple credit products from around twenty-five different lenders.

John K. Bates: That’s fantastic. You know I just want to acknowledge you Jared for the kumbaya that I read about online while I was researching this panel. I think it’s fantastic that your team pulls the whole team together and explains what this loan that you just did is going to make a difference for in the world, I just think that’s really cool. Do you know what I’m talking about?

Jared Hecht: Yeah, it keeps us going. Every time we successfully help a small business owner actually find the capital they need to grow, we’ll gather the team together and tell the story about that small business owner, what they’re going to use the credit act for and how they plan on growing their business. It’s really just—it’s this wonderful kumbaya factor when what you’re doing actually helps other people [crosstalk 00:25:13] thank you.

John K. Bates: Yeah, I think it’s fantastic. I love it. It’s one of the things that I do in my work almost more than anything is keep people connected to what the difference they’re actually making is. We have a poll question for you. What is the hardest part of managing your finances? The possible answers are: one, need for funding, two, working capital and expense management, three, taxes, four, technology. I wouldn’t mind a fifth answer not being able to spend the same dollar twice. That’s definitely a hard part for me, but that’s not a possible answer here.

What’s the hardest part of managing your finances? One, need for funding. Two, working capital and expense management. Three, taxes. Four, technology. Let us know what it is for you. Thank you Sabrina and Jared. That was some great info and I appreciate that a lot. Now let’s say that we move to the stage where we’ve been successful in securing a loan now how am I suppose to manage that huge influx of cash going forward. One of the things is making the money. The second thing is actually keeping some of it, having it work for you and all of that kind of stuff.

I’d love to talk a little bit about metrics that matter, so Josh what types of processes or checks and balances can a business put in place after they get outside capital to make sure they really understand what’s happening with their finances? What specific metrics should they be monitoring? We’re a little tight on time so if you can give us a fairly quick answer that would be awesome.

Joshua Reeves: I’ll try to quicken it up here but there are really two core concepts that I wanted to share with all of your today. The first is really about understanding leading indicators and I want to give some examples of that and basically trends and data that can help you better forecast your business. The second is about really understanding the unique economics of your customer so you can better get more of them when you want them.

Just to dive into the first. Many business owners today really think of financials as being about the past, how much revenue have we had, how much cost did we have. In reality, the really most helpful metrics are all about the future, right? It’s understanding where your business will be in the coming weeks and months and as example some of those metrics that are what I call leading indicators are things like visits to your website if you’re an ecommerce company or if you get customers to your conferences how many people stop by your booth? If you’re a retail store, how many folks came into your store?

[Inaudible 00:27:51] leading indicator to help you know where your revenue will be over the coming weeks and months but you can actually apply the same concept on the cost side as well. Whether that’s looking at things like accounts payable, future rent payments, upcoming salary costs. Once you combine these two together, that future revenue and that future cost, you can get a really strong sense of projected cash flow and then see how much cash you’ll have on hand. That’s a huge enabler of again enabling you as a business owner and an accountant to think strategically about your endeavor and whether you need to save money to make a big bet like buying a new tool or hiring a specific employee. You don’t want to be in a dynamic where you basically don’t have the capital that you need at the most important time to use it.

The second concept which really builds upon the first is all about unique economics. Again, most people think about aggregate revenue and cost when considering cash flow for example but what’s really helpful in terms of understanding what’s working in your product or service is how does this apply at the individual customer level, so how much for example do you make for a given customer and how much does it cost you to get that customer. If you can model those two values, compare them and make sure your revenue is higher than the cost obviously that multiple is what’s really important.

In a subscription business, there three to five times would be a really good multiple for that ratio. It helps you when you’re investing in a marketing program even though what ad spend or what cost of acquisition you’re comfortable with. It really enables you again to be smarter in terms of how you’re investing in your business so there aren’t as many big surprises. Understanding those two ideas together, again the unique economics and the leading indicators really give you a better snapshot of your business and definitely if you’re bringing in outside capital help you invest more efficiently as you grow your business so it can reach its full potential.

John K. Bates: Awesome. Awesome. Thank you Josh. Sabrina, it seems like you have a lot of experience advising businesses on how to truly understand their financial pulse. What do you find is the benefit of forecasting your financials and tracking growth over time and how can a business do this effectively beyond what Josh just mentioned now which is great and what have you found happens when a business doesn’t put the right amount of focus on tracking their financials?

Sabrina Parsons: Yeah, that’s a great question. I’ll start with a statistic about small businesses and small business failure rate. Sixty percent of the small businesses that fail in the United States every year were actually profitable when they failed. What happened is they ran out of cash and that is a huge [inaudible 00:30:40] and so I would say that the biggest issue that small businesses have is that typically and you can hear it when all the CEOs introduce themselves and talked about why they’re entrepreneurs and what they’ve done.

Typically someone doesn’t start a business because they went to business school and they got a finance degree and they have an accounting degree and they know how to read financial statements and they say, “Great I’m going to start a business.” Actually people have passion and excitement about something and that’s what makes them entrepreneurs and start businesses. Most of the time the small business owners aren’t business experts and definitely not financial experts.

They need to really take that time, put the forecast together because when they do then they’re giving themselves extra data to make decisions just like Matt said with TSheets what he does when he thinks about a new product that he wants to implement at TSheets. You need to be able to decide whether you can afford it. How much money it’s going to cost to implement and implement correctly and what sort of cash runway you’re going to need to actually get it done? You can’t do that all in your head the way I often hear entrepreneurs talk about their finances.

You’re going to have to forecast a financial model and when you do and you start running your business you get this extra data point to help you make decisions. When October is over and all of the sudden you’ve got a revenue number, say you made fifty thousand dollars in October, if you don’t know what you planned to make in October then you resort to saying, “Huh, I think fifty thousand is good. I wonder what I made last October, let me look that up. Well it’s more than I made in September,” but you don’t have that extra data point of saying, “Hey in January when I sat down and I put everything together I actually was aiming at fifty-eight thousand dollars so what happened? Where’s that eight thousand dollars? Where’s the data?”

Then you can start to dig in and say, “Oh, I didn’t go to that one conference I said I was going to go to. I actually decided I should go in the spring. That’s why,” or “Wow my conversion rate is not what I thought it would be by now. I better work on that conversion rate,” but if you actually take that time then you get more information to make decisions about your business. If you don’t take the time to forecast you’re just robbing yourself of an extra data point and to me that’s crazy. Get as much data as possible and get away from making gut decisions. There’s enough of those when you’re an entrepreneur.

John K. Bates: Yeah, you know Sabrina it kind of reminds me of playing pool. There’s a my style of pool is pretty much hit the balls and if it goes in that’s awesome. What I’m hearing from you is that the way to get actually good at pool would be to call your shot and then if you make it great it’s the shot you called it and made it but if you called your shot and you don’t make it at least you know you didn’t make it and you can start to look at why you didn’t make it.

Sabrina Parsons: Exactly. Exactly.

John K. Bates: I think that’s the way to get good at pool instead of being really bad at pool like I am.

Sabrina Parsons: Exactly. There’s so many tools that we’ve all talked but the way to run a business has become easier because there’s all these great companies specializing and helping you and doing it in a really affordable way. All of the sudden you can use ZenPayroll and you don’t have to pay [ADP 00:34:33] way more money, right?

John K. Bates: Yeah which is awesome.

Sabrina Parsons: Now we’ve democratized all these tools so you then get data and make good decisions.

John K. Bates: Excellent. Great thank you Sabrina. Now we’ve got a question for you. What are you most interested in learning more about? The possible answers are: how or when to apply for a small business loan. Two, ways to manage cash flow, software, checks and balances, et cetera. Three, working capital and ways to invest and grow a business. Four, new technologies that can help save money. What are you most interested in learning more about? Click on one of the four and let us know.

All right. Let’s move on to fueling healthy growth. Both Sabrina and Josh really highlighted how finding the right metrics and tracking them, not just hitting the balls and saying if it goes in good, but finding the right metrics and tracking them over time will be key to your business success. I’m curious what do we all think success is? Matt speaking of metrics that matter. What do you think is a better indicator of a business’s success, profit or growth and if a business has to choose between profit or growth which is a better metric to follow?

Matt Rissell: This [crosstalk 00:35:53]. This question I think is more appropriate for Mr. Wonderful from the Shark Tank, right?

John K. Bates: Yeah, exactly.

Matt Rissell: He’s from his perspective it’s all about profit which I’m going to talk in generals here and play two different sides but I mean the reality is that profit is essential to any company. At least ninety-nine percent them depending on what your end goal is because there is a lot of companies out there that have gone public that have never made, never had a profitable month that are doing absolutely phenomenal. I don’t want to necessarily name any names but there are [crosstalk 00:36:38] and they’re doing great and they’re growing their company.

They had a different business, different end game. I have a hunch the majority of the folks that are on this call are more after building a sustainable model for profit, not necessarily trying to go public per se. With that in mind I’m going to speak to that. If you’re growing your company, the likelihood of you being able to be substantially profitable is very low. It takes money. You have to invest in your company to grow. It teaches you to be—my approach has just been to do things differently. It’s weird.

We’re building a True SaaS company in Boise, Idaho, not in Silicon Valley or not in New York. We’re growing like crazy. We’re growing at a hundred and fifty percent year over year and we’re actually we’re doing it profitably and everyone says whatever you do don’t buy your own building. We bought our own building as a tech company. It’s a fourteen thousand square foot. We’ve taken just a different approach.

One of the things that we’ve done fundamentally I think it creates this difference is that we focus on sales. The metrics that we use that I use that actually I think capture the essence of my company and I’ve done it with all of them. That’s because I think that sales and revenue solves a whole bunch of problems for companies, sometimes it creates [crosstalk 00:38:16] them but the majority is that it solves them is that I use for us a metric called Our Net Subscription Revenue Growth. What that does is that encompasses [inaudible 00:38:32]. It encompasses conversions, and it encompasses growth and where we’re headed.

I have gotten an email every single morning at 5:15 every day for the last six years while we’ve built TSheets and it’s the first I do when I wake up in the morning even though all the magazines say not to do this, I roll over, I open up that email and look to see how much we grew yesterday.

I would pick a metric for your business and if you’re an accountant, the same thing for your clients, pick a metric that’s simple, that’s easy to measure, that it’s high enough level that it includes several different components of the business and watch it and get the business owner or leader to watch it daily and that will influence their decision making substantially.

John K. Bates: Yeah, very good. Thank you Matt. Jared as Matt said growth is where your business wants to focus but high growth does eat up cash. It costs to grow, so that’s probably why so many businesses, small businesses especially need loans and earlier we talked about the type of loan products available to small business but I’m curious how does a business owner know if taking out a loan is a smart idea? What would you advise if you’re thinking about it but you’re not totally sure?

Jared Hecht: The easiest way to think about this is by doing a very simple cost benefit analysis. What that generally means is does the benefit of taking out this loan outweigh the true cost of the loan? A small business owner needs to ask themselves can I be a profitable borrower? Meaning if I borrow this money will it actually lead to a profitable experience. You can look at that through the lens of several different use cases. For instance, good use cases might be if a small business owner has an opportunity to get a huge discount by buying inventory in bulk, if that small business owner knows that he or she can move that inventory off their shelves profitably it’s probably worthwhile.

Other examples are making investments and acquiring equipment that will help you grow faster or will increase new lines of revenue. Another example is if you have a very predictable marketing funnel and you know that you can acquire customers at a certain cost and sell goods at a certain cost that outweighs those acquisition costs which comes back to a fundamental understanding of what Josh was speaking about before which is understanding the true unique economics of your business and what it is that you do. Really conducting that cost benefit analysis is something that we encourage all small business owners to do.

One thing that banks do and now we do as well when it comes to helping a small business owner understand whether or not he or she should actually take out a loan is a simple equation. Really you have to look at the cost of a loan and what you should do is ensure that the cash flow of your business is anywhere from one and a half to two times greater than the debt payments you’ll make on a loan. If you’re in the clear there, then you’re generally in the clear to borrow.

The most important thing is really ensuring that you can be a profitable borrower. If not, a loan can actually hurt your business much more than it can help. That’s one thing to absolutely keep [inaudible 00:42:06].

John K. Bates: That’s fantastic. That’s absolutely spot on. Thank you Jared. Now Jared and Sabrina and Josh and Matt I didn’t prepare you for this because I wanted to just get your candid responses. When I looked at all of your profiles online and I did my research and I got to know you a little better that way it certainly looks like you are all freaking unbelievably phenomenally successful and it’s a little bit, could be a little bit intimidating for people who don’t maybe feel like they’ve achieved that success yet but are on the road.

I want to know and we don’t have time for the story of how but I just want to know from each of you have you ever failed and what is your advice for people in dealing with that failure because I just know that being ashamed of failure and being afraid of failure does not really create an innovative climate. Have you ever failed and what would be your advice for dealing with failure really quickly? Let’s go first Jared.

Jared Hecht: I think the most important things I’ve learned in life have been through failure. I have learned some very, very difficult lessons from failing in business. The first company I ever started the music marketing and production company I had in college was definitely an abject failure. It was an unprofitable business. We lost customers regularly but it was also one of the best learning experiences I’ve had.

I would say embrace failure. The most important is to not fail the same way twice. Every time there is a failure whether it’s in general as a whole business or a simple lesson that you’re learning as a part of a business, it’s important to embrace failure as much as possible.

John K. Bates: All right. Fantastic. I love that. Sabrina how about you? Have you ever failed and what would be your advice for people to deal with failure?

Sabrina Parsons: Oh, yeah, I mean I think I’ve failed many times. In fact at Palo Alto Software, we are a huge testing culture which means we’re going to test everything. We’re going to try to have minimum viable product approaches to everything we do which means there’s failures all the time. You test is this landing page better than the other one? I feel like the biggest advice for people is failure oftentimes gives you better information than success.

Success has a lot of variables in it and you feel great and you go, “Wow it worked,” but you’re not always necessarily sure why. When you fail, you can trace it back and you go, “Wow that was the wrong decision and now I know I’m not going to do that again.”

John K. Bates: That’s great. Thank you Sabrina. Josh, how about you? Have you ever failed and what’s your advice?

Joshua Reeves: I think we’re all going to answer in a similar way which is absolutely. I think back to my prior business which although it had a good business outcome from the lens from being a mission driven company that I see myself working on it for a long time it was a very reactive business. ZenPayroll is very much a byproduct of that thought process. We’ve been very deliberate and proactive in setting the foundation because this is a long-term endeavor for us.

The lesson I have from that and the advice that I have for everyone is really to take the time to be introspective definitely in the context of whatever you’re doing but especially in between. I think of these as chapters and after that business before starting ZenPayroll taking a month to really think through what had worked, not worked, what I have liked, not liked. All of that has really been very formative to how I’ve approached this business which I hope to do for many, many years. I think a lot of times people rush in between things even if they’re changing jobs and oftentimes taking a step back can be really, really healthy.

John K. Bates: Yeah. That’s fantastic Josh. I mean gosh I think that’s great advice around failure and I think it’s also great advice around success just in general paying a little more attention to just everything. I love that.

Joshua Reeves: Yeah, you’ve got to stop and smell the roses, right?

John K. Bates: Yeah, exactly. Yes you do. Listen I think introspection and being in between things those are all uncomfortable for us as human beings so you’ve got to get over the discomfort of slowing down for a second and actually looking at yourself. I think it’s really great advice. Matt how about you? Have you ever failed and do you have any advice for people around it?

Matt Rissell: Yes. While it’s easy to say to embrace failure, it’s awfully hard to embrace failure.

John K. Bates: It sure is.

Matt Rissell: We had our first three go to market strategies for TSheets failed miserably, flopped horribly and I remember laying on the grass looking at my co-founder, looking up into the sky saying to each other do we even, are we a time—what do we do? Are we a time tracking company? The one thing that my advice comes from the thirtieth President of the United States, Calvin Coolidge. His quote really quickly is, “Nothing in this world can take the place of persistence. Talent will not. Nothing is more common than an unsuccessful talent.” [Inaudible 00:47:33] almost a proverb. Education will not. The world is full of educated derelicts. Persistence and determination alone are [inaudible 00:47:42]. My advice is never give up.

John K. Bates: Right on. Okay that’s fantastic. Thank you all for that. We’re turning to the listeners now and the people who are actually doing us the courtesy of making all this talking worthwhile by listening and we’ve got some questions from them. We’re going to go to those questions now. Let’s start with a fairly straightforward question. It should have a hopefully straightforward answer I think Matt you might be the guy to do this but is there a way to create a pro forma in Excel that you could share with us like verbally over this webinar.

Matt Rissell: There is. It is hard to do it verbally, but essentially make sure that you include all the moving parts and your formulas in the Excel spreadsheet spit out the numbers accurately. My recommendations specifically for that is most small businesses can’t afford a CFO, but get a CFO to give you advice. Find a CFO of a company to give you advice on how to create it. Another alternative, a great alternative to it that will help you create that is a tool called LivePlan and they’re on the call. They actually have a forecasting component to their software and it can help you create it.

John K. Bates: Okay and that’s called what?

Matt Rissell: It’s LivePlan which Sabrina Parsons happens to be the CEO of.

John K. Bates: Okay awesome.

Sabrina Parsons: Thanks for the plug Matt.

John K. Bates: Yeah, fantastic. We’ve got another question and I’m just going to read it verbatim because I think it’s really great. I’m working for a startup that has a ton of great ideas and a great vision but is currently understaffed and lacking capital. There is so much work to be done that it’s getting overwhelming. What should my startup be focusing on, marketing, searching for leads, or working on our strategy?

I want to just toss something out if I may because some of the best startup advice that I ever got was that startups don’t usually fail of starvation. Startups usually die of indigestion and I think that that’s a little bit of what I hear in this question so startups don’t usually die of starvation. They usually die of indigestion, trying to do too much, too fast all at once. Does one of you on the panel have a particular thought for this company? Anything that you would like to say?

Sabrina Parsons: John, I would definitely I saw that question come through and we hear it so often with all of the startups that we help. What do I do first? I think that if you’re undercapitalized and under resourced, you have to focus on revenue, revenue, revenue. You have to focus on for the nuts and bolts, what is the business model, how are we going to make money. It sounds like leads are important for this company. Get as many leads as possible, bring in more money, prove that you’ve got a good model and then you can go out and raise money or get a loan and more easily actually get that money. [Crosstalk 00:51:17] put your efforts into actually making sales.

John K. Bates: Yeah, right, revenue because the great vision and the great ideas they need the revenue to stay alive and keep going. I do think that in my experience, that’s one of the things that I’ve seen happen is people get so excited about what’s possible that they forget about what’s bringing in the money and how much the money makes it all possible. Let’s see we’re starting to get a whole bunch of questions here and I just want to acknowledge that if we don’t get to every question I think that we and I’ll wait for confirmation on this but I do believe that if we don’t get to every question we’re going to do our best to have the panelists write answers and put them up on the page along with the recording of this webinar as well.

If we don’t get to your question, please do not despair. We will do our best to answer it and make that answer available afterwards. Let’s see. Here’s a question for, you know there seems to be a lot of stuff coming through here about reading a pro forma and those kind of things so Matt if you could very quickly just tell us some of the nuts and bolts of what go into a pro forma.

Matt Rissell: This is what I’ll do because that answer is long and it varies depending on the type of business. There can be different [inaudible 00:52:49] components. My recommendation is this. I have a newsletter and I will write and have a whole section on pro forma the next time with some examples as well and I’ll share that with all the folks that are on this.

John K. Bates: All right. That’s fantastic. I was kind of hoping you would say something like that. Jared could you quickly tell us what are the pros and cons of a bank loan versus an investment for equity?

Jared Hecht: There are many, many pros and cons. Let me list a few [inaudible 00:53:29] is generally the amount of time that is required to actually go and secure a bank loan. We talked about it before, forty-eight to seventy-two hours of work needed to actually get that application through the door. As a business owner, the most valuable asset you have is your time so there’s an inherent compromise there. The pro is that it’s cheap capital and it’s not diluted.

With equity [crosstalk 00:53:53] capital well sometimes you can bring great investors around the table who will be value add and provide insight that you may not otherwise have been able to have access to as you grow your business. The downside of that is you’re selling a piece of your company. Every single equity investor that you bring on is somebody that you are beholding to, whether it’s giving them updates, whether it’s them owning a percentage of your company. You effectively become an employee of your equity holders which also has pros and cons as well.

It’s really a matter of sacrificing the time and the effort to own all of your company versus giving us some of your company to investors and perhaps not being in control of your own destiny over the long run.

John K. Bates: Yeah, good. Okay, awesome. That brings me to our fourth poll question which I almost forgot. It is going to come up here in just a moment. What are you most interested in learning more about? How or when to apply for a small business loan, ways to manage cash flow, software checks and balances. I think we did this didn’t we. Did I miss a different poll question?

Male: Yeah, yeah we did it before.

John K. Bates: Okay so did we get to all four polling questions because we want to make sure that we find out what was going on for people who were listening?

Male: Yes we did.

John K. Bates: Fantastic. Great. Let’s see. I’ve got another question here. I think we I don’t—we have time for a very fast answer on this one and then we’re going to roll it up because we want to start on time and end on time. What general return levels are professional investors looking for in viable startups and on what basis is that determined? Does anyone have a great insight on that one?

Sabrina Parsons: You know John, I’ve got a really quick answer to that. I don’t think that there’s one answer for that. I think it depends on the type of venture capitalist company you’re going to see. Are you going for private equity? Are you going for angel investment? I think a better answer for that question is really understand your capital needs and your industry and then start reaching out and networking with anyone that you know who might know these venture capitalists because I think the biggest mistake I see a start up founder who goes and presents to institutional investors and tells them you’re going to get this return and I’m valued at this.

The investors are going to tell you what they value you at and then they’re going to tell you what sort of returns they’re going to expect based on your valuation so you’re better off really understanding your space and your capital needs and then doing tons of research in terms of who you should be pitching and networking as much as possible to get introduced to those people you should be pitching to.

John K. Bates: Fantastic.

Joshua Reeves: John, this is Josh. I guess if we have a minute I want to add just really quick to that I think a lot of the questions are related to fundraising and financing et cetera. One thing to just add to the mix for everyone listening as you consider those processes is I will say fundraising is about people, not just capital.

A number of other panelists have eluded to that earlier but you really are marrying someone effectively when you raise capital even whether it’s equity in particular or in other means they are now a part of your company. They are a part of your community. They represent you in an external context and I think there’s a lot of pieces where again cash is king you need capital in your business but there has to be line that you’re willing to draw in terms of who you want to work with because if this is an endeavor you’re striving to do for a long, long time, you want to make sure that you’re happy with the folks that you’re working with.

As you go through those processes, it can feel very urgent and very important. Just make sure that you do take a step back. I always think of funding as akin to hiring where we apply a value system on their motivation, their philosophy, their value system not just their capital on hand or their terms. I wanted to make sure that that was brought up in the context of this question.

John K. Bates: Yeah, fantastic Josh. Thank you very much. I see it is straight up 10:00 here on the west coast and I want to thank first of all the speakers, Jared Hecht the CEO and co-founder of Fundera, that’s www.fundera.com. Sabrina Parsons, the CEO of Palo Alto Software and the URL that you should check out is www.liveplan.com. Matt Rissell the CEO and co-founder of TSheets. That’s a simple one www.tsheets.com. Joshua Reeves the CEO and co-founder of ZenPayroll. That’s www.zenpayroll.com.

Thank you all very much for being here and for sharing your insights and your experience with us and thank you to those of you listening because without you this would not have been nearly as fun and impactful. We appreciate you being here. Thanks for answering our polling questions. Thank you for asking questions. We will answer the questions that came in that we didn’t get to on the webinar. We will answer those in text and put them up as fast as possible and Matt is going to send the thing out about the pro forma so we’ll get all that stuff together for you.

This is John Bates with Executive Speaking Success thanking everyone for being with us today and wishing you a wonderful rest of your day. Go out and be profitable.

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Jonathan Michael
Jonathan Michael

Jonathan is the Engagement Marketing Manager for Palo Alto Software, and has spent the last 9 years developing and implementing digital marketing strategies. During that time, he has learned that empathy and authenticity are strengths by which companies can effectively engage with individuals at every point throughout the customer journey.