Transcript: A conversation with Chris Davies — Do it Yourself (DIY) Cash Flow Solutions

So, hello and welcome to CIBC Small Business Advice Centre. I'm Ian Penny, VP Small Business Banking at CIBC.

In today's broadcast, I'll be speaking with Chris Davies of Dog and Pony Studios about every business owner’s favorite topic, cash flow.

Chris is an entrepreneur, a small business owner, and CIBC small business banking client.

And he has promised us a lively been there, done that discussion that will really delve into the good, the bad, and the ugly of cash flow management.

In order to highlight really some best practices and help everyone avoid some of the pitfalls that he, and like many entrepreneurs, have experienced over the years and when they started out in business.

So, welcome Chris! Thank you so much for joining us today. 

>>Chris Davies: I'm happy to be here, thank you.

>>Ian Penny: So, to get us started Chris, why don't you introduce yourself, tell us a little bit about your company.

>>Chris Davies: Well, my name is Chris Davies and I'm the owner and founder of Dog and Pony Studios.

We're a Toronto based marketing agency that is focused on financial services. We incorporated in 1999 and it was a company that I started when I was actually creative director at a corporate here in the city.

But, it became a sideline and the sideline became a job and so eventually I quit the corporate life and became an entrepreneur.

I didn't really know I was going to be an entrepreneur. I just thought I was taking a sideline to the next level, in running a business.

>>Ian Penny: Great. Thank you. So why don't you tell us a little bit about cash flow and what it was like really in the early stages in the beginning of running a business.

>>Chris Davies: Well, in the beginning the business was running me. The cash flow was terrible. 

It was not only terrible for the amount of cash coming in and out because I was a start-up, but it was terrible in the way I was managing things.

You know, I was an accidental entrepreneur. I didn't really think about the running of a business. I thought, "Hey, this would be a good idea, I could work for myself. That sounds like fun!"

But I didn't think about all the intricacies or have any real picture of what it takes to run a business.

And cash flow is the sum of everything you're doing. It's the money coming in and all the jobs you're taking. It's all the clients there on paper.

It's all the people that you're hiring, all the expenses that you have, all the growth that you want. All of that.

And when I started, all of that was just a bunch of paper stuffed into a shoe box that I would hope my accountant would look at quarterly or annually as it were.

It wasn't really a good way to do it.

It was — cash flow, I guess more like a historical picture of cash flow rather than any sort of cash flow picture I could work with in the here and now.

>>Ian Penny: So, thank you. So, it sounds like, like many new businesses, the focus is on the business.

In creating a business and having the business be successful. Cash flow is kind of something that comes after.

So maybe in looking back, why do you think it was important? What did you learn and did you really kind of learn it just as you went?

Or did you get access to the information through the process? 

>>Chris Davies: I didn't have a good idea of what cash flow was until I started to run out of cash.

Like any startup, there are periods when you just have more expenses than you do revenue.

And you know what, I had a good client list and the business was growing. We were getting all kinds of great accounts, hired in a few people and it looked like simple math.

More work, more people equals profit. And annually, when my accountant would take a look at the books and run our financials, there was a net profit.

But not a dime of it was in the bank. That's when I really realized cash flow was something that needs to be monitored.

And cash flow was really telling you what the pulse and heartbeat of your business was all about.

I didn't really read up too much on it initially but once I got the idea that cash flow mattered, I read a few books.

And they were okay. They were more like accounting style things.

I would say more the organic process is where I learned what cash flow could mean to me. And how I could use it to improve how I'm running the business and where I could take the business in the future.

>>Ian Penny: Very good. So, was there something particular that when you look back that happened or occurred or a thought process that said, “It's time for me to make a change, I need to do something different?”

>>Chris Davies: There were a couple of points, and they both started with near bankruptcy. Like any start-up there's pitfalls and there's dangers. Not all start-ups make it.

I think the statistic I read last was 80% of businesses have trouble in the first 5 years.

It's hard to get through that period. And like most businesses, there were times where there were far more expenses than revenue.

Where was the money going to come from? 

And so, I realized at that point, I better be up on not only knowing how much cash I have and where it's going to go, but projecting the next quarter, the next year, the next couple of years if I could do that.

And that helps me understand what kind of resources I have when something bad happens. 

The markets crashed in 2008 and with it my business crashed for 3 to 4 months. We focus in financial services and at the time every financial services company we worked with stopped spending.

Everybody was afraid. Did I have a reserve of cash at the time? Barely.

Had I predicted cash flow better and saved up for a rainy day, I would have been far better at navigating through the tough time such as that.

That's something I learned in the moment of crisis and I wish I had learned it before.

That's when I realized cash flow matters and there's got to be a better way to do it.

>>Ian Penny: Very good. Lots of good points there.

So when you look back, did you have to make drastic measures when you reflect on it now?

Were they really significant things that you had to change in the way you were conducting your business?

>>Chris Davies: There were actually, yes.

So, we had bricks and mortar. We had a great studio, very agency, beam and brick, great view of the city.

It was a place where not a single client would come to see us. We're always on the road going to see the clients on their home turf.

So, I closed the office and saved all that overhead. And that was a positive change for everybody.

We could all work remotely, we had the convenience of not commuting. The technology was there at the time, we could start using file sharing services and bandwidth was there for internet connectivity so we could talk to each other.

You know, chat solutions, voice-over IP solutions, we could really make it happen.

So, we saved a lot of money. And at the same time with all this technology, cloud accounting came around.

Some services started being offered that really changed how I could run the business not just what the business looked like.

So, I started moving my books from the old-fashioned shoe box and manually entering everything into the accounting software, to a cloud solution where it automatically grabs a bank feed and reconciles my bank statement.

Where I could shoot receipts with my phone and it reads what the receipt is and automatically journals those entries.

All this cloud accounting made my financial picture accurate in real-time.

I wasn't busy trying to catch up on things annually. I was having it done in the moment.

And when that happened, I could start plugging in cash flow tools so that I could get an at-the-moment real-time picture and projection, of how much money I have and what it looks like 12 months from now based on the sales I have in the pipeline.

>>Ian Penny: So, you closed your office. So, a lot of things going on in the business then.

So, good for you, you closed your office. And that would have obviously created some significant savings for the business.

And then you started using some cash flow tools. You mentioned cloud accounting. Were there any other tactics you used through the process?

>>Chris Davies: Well, the tactics became a lot about innovating what we were doing.

So, once I could see the cash flow in real time, I could actually start digging into the numbers a little bit and understanding better what was happening inside the business.

Managing your business is an ongoing challenge. You never have a conquer.

Today you may have a conquer, the market changes tomorrow. Suppliers change tomorrow, your clients change tomorrow. Technology changes tomorrow.

You're never really sitting in a position where you can say, "Well that's done, I'm good now. I can retire 20 years from now, I've got it all worked out."

And cash flow is the thing that can tell you what's changing. So, for example, I looked at cash flow and at the time we weren't totally specialized in financial services.

We had clients in other sectors like telecom and health. And they were the clients that had the least amount of revenue.

The least amount of net profit. And I could find those numbers through the cash flow when I look categorically at the kinds of sales we were making.

As well I could look at margins. What's really making my net profit soar?

Is it this kind of job or that kind of job?

When you're doing them, you're so in the midst of trying to make it happen; getting the work, making the sale, executing well, having a happy client, doing the next project in the same way.

That you get on the treadmill of looking only at what you're doing executionally and you're not strategic at all.

So, other tactics became strategy stuff. The stuff that looking back, if I had done it at the beginning, I'm sure the business would have been far better than it was in those early days.

With cash flow, you can take a strategic look at the health of your business.

At where it's going and what is and isn't making you money. And then create innovative tactics for yourself.

Decide, I'm not doing this kind of job anymore. I need to pursue these kinds of clients.

If only I could reduce my expenses by 5% and my revenue up by 5%, let’s see what that difference looks like in terms of money in the bank.

And tinker with things, that's where the innovation in cash flow comes from.

>>Ian Penny: So, thanks Chris. Lots of good information there.

Would you say there's still places that you're struggling with when you think about where your business is today?

And things that you would like or need advice on in the future. 

>>Chris Davies: I would like advice on other innovative things.

Like, how do I better automate my workflow? How do I automate my payroll?

The more things I can have happen at a click, the better.

Automating workflow in my industry anyway, the creative industry, is always a challenge. It's very difficult to appropriately predict your budgets and timelines.

It's not like we're selling items and we have an inventory to go. Projects are a little nebulous on the creative side.

We're going to create an ad campaign. Well, how detailed is it going to be? How many edit cycles are we going to have to make the client happy?

We're not sure. And any delay in our part can affect a client. They have deadlines.

Any delay on the client’s part affects us. If they get locked up deciding something or it's getting reviewed by a legal department for a few weeks, I can't bill it out.

We only bill when the work is done. Until the work is complete, there is nothing and that's a huge impact on my cash flow.

The kind of advice I need is how do I bridge those gaps? What kind of solutions are available?

Where can I turn to get maybe, financing when things like that happen unexpectedly. Or, financing when there's a slow period.

In my industry, January is a deadly month. Nobody does creative or makes decisions when they come back from the holiday season.

It's hard to get meetings, it's hard to make a sale, it's hard to complete execution on existing projects.

And solutions that can help guide my business through those times would be very effective.

>>Ian Penny: Well now that we've really taken a step back, thought a lot about evolution of cash flow in your business, from beginner, or neophyte to really being a pro at it today.

Or, being a ninja when it comes to cash flow management.

Can you see anything else that would have made life easier through the process?

For instance, we didn't speak a lot about working capital. And particularly your early days, I know working capital is a big challenge for businesses.

So, any help that you think you could have had at the time and you will need going forward as you continue to grow your business?

>>Chris Davies: Well I would say that working capital is something I hadn't thought about.

Again, not being trained in accounting, or even business really, just starting up I thought, well you get a job and you get some money and it pays for the things that you need like an office or people.

What I didn't realize is that you have work in progress.

You get the client, you start on the work, you may get some of the money around that but there's a portion of it, and often a large portion of it, you don't see until 60 or 90 days later.

So, yes, credit matters. And I would say do it early, before you need it.

Because by the time you need it, you won't have time to get it arranged. Credit is very important, working capital is very important.

Because when you start a business you think, "Well I'll get a job and there's money there and that pays for expenses."

But, you're financing the work in progress, this is the part I didn't know.

You know, you get the client, you get a little bit of money up front, not even the majority of it.

And then you have people that have to do the work. And so, for the time they're doing the work until the project's close or until the good is sold or whatever it might be, you're tying up your money paying people, paying for resources, paying for raw materials, whatever it is to get the thing done.

Working capital allows you to finance that work in progress so that you have a way of paying for all that until the big reward of the final check comes in.

At that point everything evens up. I can't stress it enough that working capital is important for any business.

When you're starting up particularly. And in growth cycles too, it never really ends.

I've been in business now for 18 years and I still have working capital issues from time to time because there's peaks and valleys in my revenue stream over the course of a year.

>>Ian Penny: So, thanks Chris.

So, we're calling this podcast or conversation today, “Do It Yourself Cash Flow.”

So, I think I have to ask the question, what would you recommend to our listeners?

Can you do it yourself?

>>Chris Davies: Well you can do cash flow yourself, but I wouldn't recommend it.

I used to do cash flow myself using what I consider a bunch of old fashioned tools. I'd set up spreadsheets and try to organize my revenue and expenses.

Which would mean I'd have to bring my bank reconciliations up to date. So, I have to do all that book keeping then the reconciliation, make sure everything is balanced.

Check my spreadsheet 3, 4, 5 times, make sure everything works.

I'm not a CFO. I'm not trained in accounting or business. So, I'm doing it and hoping that what I'm doing is correct.

The tools that you can get now can give you a really good cash flow picture. And they're not that expensive.

If you think about your expenses for your business or your revenues, I have yet to find a tool that costs so much that you would say, "Why would I spend all that?"

It's less than a business lunch really. And then with those tools, some of the information and insight you get out of cash flow, it can turn to your business advisor.

Go to your bank and say "Look, I'm looking ahead 6 months from now, and my expenses are going to be higher than my revenue. What can we do about that?"

Or you can look and you can say:

 "You know I've been looking at my cash flow tools and I have a lot of clients off-shore. Or I'm getting a lot of materials off-shore. And there's all this foreign exchange stuff I've got to deal with. Do you have anything that could help me there?"

Or is there even just a more efficient way to pay people than the way I'm doing it that saves me time and money.

And I'm sure there's lots of solutions out there. But these kinds of insights come from looking at your numbers.

You can start seeing the pinch and pain points and then you can turn to your advisor to get some help.

>>Ian Penny: Great. So, very good advice Chris. Thank you for going through that with us.

I think that's all the time we have today. But I'd really like to thank you again for taking the time to go through it, share your experiences.

You know, often in business we talk about success stories, and how everything worked at the end of the day. But really it is about the journey and it's about the learnings through the journey.

And I appreciate you sharing some very practical examples with all of us today and some things that I think we can learn from and use in the future. Thank you.

>>Chris Davies: It's been my pleasure.

>>Ian Penny: So, this wraps up or episode today, but please do check out the many resources available on in our Small Business Advice Centre.

Where we have a lot of content that dives deeper into the issues that we spoke about today.

Including a companion info graphic on this topic that's fun and informative and I think you'll enjoy it.

I'm sure Chris would agree after our conversation today, the earlier you start, the better your chance of success.

So, thank you for listening and remember if you have any questions about anything you've heard during our conversation, contact a CIBC Business Advisor.

We want to work with you.

We want to help you find the best solutions for your business.

And we'll be happy to answer any query's you have in the future. So, thank you.