Episode 30: Keith Kohler • The Financing Man • Part Two - The Month End Podcast

Episode Transcript
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Brad Ebenhoeh (00:00):
Welcome to The Month End CPG community chat,
The Month End will provideemerging CPG brands real life
knowledge into the accounting,finance and operational worlds.
Our guests will be keystakeholders from those same
brands as well as other keycontributors in this. Right
Welcome to Episode 30 of TheMonth End podcast. We have Keith

(00:22):
Kohler, your financing man backfrom the prior episode to chat,
more information on kind ofaction items and next steps and
the the debt financing topics wetalked about in episode 29. Hey,
Keith, long time to talk.

Keith Kohler (00:36):
I know. But it's been so long.

At least we have different short times a
different day that we do. Allright, well, we're looking
forward to get going. So I thinkfirst things first, for the
listeners out there that arelistening to this stop, pause,
go back, listen to episode 29that'll get you kind of set up
and understanding the types ofbusiness entities and types of
financing we discussed. It'sabout an hour long, it's super

(01:03):
informational. It's great.
Please listen to that, then comeback to this. But before we get
started, again, Keith, kind ofjust give them more background.
You know, reintroduce yourselfto the audience. And then we'll
kind of you know, moving intosummarizing kind of a previous
podcast, a recording of kind oftypes of entities and things we
talked about, then we'll getinto the bulk of this

(01:24):
conversation. So go ahead.

Yeah, my pleasure.
So thanks, again, Brad, it'sgreat to be here with you and to
be in supportive, the largerAccountfully community. And as a
reminder of introduction, theway I support founders at
different stages of theirdevelopment from startup through
to lower middle market is I helpthem essentially get the right
financing at the right time,advise them on what could be
available to them at differentstages of their company's

(01:48):
growth. And then help them goget those deals, whether through
referral, or by activelyparticipating in the process.
And my overall most importantpromise to everyone out there is
that I can meet you where youare, and guide you along your
financing journey and meetingyou where you are means whether
your experience in finance issmall or beginning, or whether
it's super advanced, there's away I can help you make sure

(02:12):
that you're getting exactly whatyou need at the right time. And
we also recognize that yourjourney might not just be the
one on getting financing, therecould be other ways to support
your switches with your mindsetor other elements that
contribute to how you show up inmanaging your business finances,
or how you might be best suitedto go after a financing process.
By way of additional background,I'm an adviser to many companies

(02:34):
in the CPG space. And I'm also aseed and an angel investor and
several as well. And the way Igot my start in this business
was when I was diagnosed celiacor gluten intolerant in 2005.
That gave me my first real bigreason why and important
introduction. So it's personalto me, I want to make sure that
this space does well gets thebest available financing for

(02:55):
their businesses to fuel theirgrowth and meet their
professional and their personalobjectives. So that's
essentially me, and what I standfor, and I'm really excited
about today's topic, Brad,because I think you probably see
it all the time. I imagineyou're asked to support people
on financing requests a lot,

Absolutely. And I think you know, if you get one
right?
takeaway from this, listeners isbe proactive. Don't wait 'til
the last minute, I don't knowhow many times somebody comes to
us. "All right, now I'm gonnasign with you Accountfully To
get going, I need my bookstomorrow, I need a five year

(03:36):
financial model tomorrow."That's not how society works.
That's not how a good serviceprovider work. That's not how a
good relationship works. That'snot how you're going to really
be able to secure what you need,you know, when you need it. So,
but yes, we're constantlyinundated with those requests
and support and further, we'dlove to help that and get it but
I think having a really goodcomprehensive planning approach

(03:57):
helps out with that with withthe with the listeners and the
brands out there.

Yeah. And Brad, you and I have the same
experience when I when peoplecome to me for financing.
Probably about two thirds of thetime. It's, "oh, shit, I'm in a
pickle," right? I have. "I'mstuck. I didn't plan for this."
Or really, some of it we knowwas systemic, right? It was
supply chain crises. It was nowbanking crises. Some things that

(04:21):
were surely out of the controlof many of our founders. And yet
even before that, it was stillthe majority of people who had
not planned for it. It's rarethe occasion that I get, "hey, I
really want to be thoughtfulabout what my financing options
could be open to me because Ithink I'm planning this growth,
I'm not sure. And what can wefigure out?" It's an extremely

(04:42):
rare circumstance and yet that'sstill the way I like to guide my
discussions that even if they'renot asking about it, I like to
make them understand what couldbe possible. And yet, there is a
middle ground where people docome to me with a very specific
need. "I want to buy a piece ofproperty" right? "I want to buy
it equipment to put in myco-packer because that'll help
me with my efficiencies andinclude my gross margins." "I'm

(05:04):
hiring people, I want to getfinancing to support the working
capital, or other requirements".
So I think there has been–as aresult of the pandemic and the
supply chain crisis–morefounders are more engaged with
their finances and understandinghappily, at least more of the
day to day. And I think withthat baseline, there's a lot
more ability for them to graspquickly, and understand what

(05:28):
financing could mean and how itwill support their growth.

100%. I think, I think, too, too big things that
I see a lot of reasons whypeople are more proactive.
Number one is, if you've donethis before, if you sold a
company, if you've been involvedwith a startup or a different
business forever, a lot of thosefolks literally come to the
table, right at the start oftheir next venture, "hey, I want
to get a good set of books inorder a good team. I know this

(05:55):
is important let's go from thestart, and let's move on from
there". And then secondly,looking at what happened the
last three, four or five years,right, pandemic, boom, like
everything, stopping what'sgoing on, you know, changing the
way we live, changing the waypeople consumers buy products.
You know, number one, numbertwo, the supply chain issue as a

(06:17):
result of that, like, you know,getting products in
understanding cash outlays,things like that. And number
three, just most recently, thethe banking crisis with SBV. And
things, I just the whole pointof those three situations are
like now more than ever, ifyou're not like aware that
something could happen tomorrow,that can impact everything that

(06:37):
then you may need to have yourtax returns done, your
financials done in order to geta loan tomorrow, like PPP, when
all that came out from the COVIDsituation, then I don't know
what else to tell you. Societychanges so fast these days, who
knows what's gonna happen nextweek. So you know, at the end of
the day, basically get your shitin order now, and then that'll
help you long term as we goforward. So that's just kind of

(07:00):
a I think the big the big, youknow, I think theme from both of
us is just be proactive. Andthen we'll get proactive. And

And yet, we recognize it's one of the
hardest times ever to launchgrow, and succeed in CPG.
Because there is so much stuffthat's extraneous, and macro,
and out of our immediatecontrol. And yet, that
reinforces why we must be alwaysprepared, show up the best we
can make this a priority and ourbusinesses, engage actively with

(07:30):
us trust our leadership, right?
And let us help guide you thebest way we know how so that you
have the best chance of having asuccessful outcome.

Yes, good. Well, let's get into some specifics
Keith. So I think, like actionitems from you know, specific or
tangible action items for kindof the small business owner
right to help prepare for aswell as then let's go to action
items right now. And then thenwe'll get into kind of specifics
of requirements maybe that, youknow, that people will need when

(08:03):
they're go to underwriting likethis is going to be asked to
make sure you have the numberone, just kind of basic,
tangible three to five actionitems. So let's start with that.

Sure. So, again, we'll get to the documents
afterwards, right? And talkabout the FDA. Exactly. So first
talking about really, how do youget prepared, right? How do you
really start this types ofprocess? And I think, even
beyond being committed towhoever you're working with,
right, I'll tell I'll start withyour finance team. I think

(08:34):
that's the most important thingto be considering is when you're
working with Accountfully, whenyou're working perhaps me with
me on financing, when you mightbe working internally with
people? Do you have everythingyou need to be set up for
success? Right, are you and notjust do you have the team
capabilities and the skill sets?
But are you really committed?
Are you committed to managingyour finances actively? And

(08:57):
really, what I mean by that iswhat I call getting into a
finance rhythm. And I wonder,Brad, right, probably all your
clients have a monthly financingcall with you or have the option
for them that don't do it.

Yeah, there's some that don't do it. For
multitude of reasons, I thinkthat we kind of we basically
kind of push or require peopleto do it, I think it's value add
as much as possible. There aresome people that are kind of
lower budget, more bookkeepingclients, but the ones that are
kind of at this phase of CPGgrowth, I think that that
financial report review callreally helps them understand

(09:33):
their business, their margins,KPIs, looking backwards last
month, last quarter, lastquarter versus the same quarter
last year, that type of stuff, Ithink really helps them
understand it and at the end ofthe day, it kind of
subconsciously starts puttingthat in their head and brain
which helps out you know, whenyou deal with investors or
possible investors and thingslike that

100% And I think one of the things we get to do
as service providers andadvisors is step up in our
strategic support right, the waywe see things beyond the
numbers, how we can help thefounders make good decisions and
how we can support them infinancing processes. So I really
think of our role as anextension of the core financing
team is now more important thanever. And the importance is

(10:13):
engaging with us, rightcommunicating with us telling us
your needs and keeping us top ofmind. And while Dare I say on
speed dial.

So number one, having your financing team or
your your kind of financial andfinance team in place. Number
two?

the alignment on the strategic objectives you
wish to have come on or sorry,what you wish to achieve in a
financing process or in yourgrowth being truly aligned. A
very classic example is alloften see someone a founder
saying, "Hey, I'm still aboutall about growth." And yet, what

(10:47):
did they tell their taxpreparer? Well, I don't want to
pay any taxes. Right? And theyou get this quandary of how can
you support growth, if you'renot going to even report what
you're really making or evenmaximize your opportunities by
what proper showing a lot ofprofitability can do for you. So
I still find that there's oftenmisalignments by even founders

(11:08):
going to war with themselvesabout what they might want to
achieve versus the way theyhistorically have done things,
particularly if for the firsttime they're experiencing
growth, or they see goodopportunities. And I also see
misalignment even internally onfinance teams, right? Sometimes
I think, Brad, you know, youmight choose to account for
someone on a more conservativebasis, sometimes it's more

(11:29):
aggressive. And we get to danceand make choices there. And I
wonder how many times thefounders are really saying,
"hey, I need to be more engagedwith some be thoughtful about
what what I'm really trying toachieve." And the last thing
I'll say on alignment is familyalignment is a big thing. The
pandemic was rough on so manyfamilies. And if you're a
founder out there that has aspouse, a partner, and important

(11:51):
significant other and or afamily. What you're thinking
about financing, and yourpreparation, and your mindset
could be different, a lot moredifferent now than it was
pre-pandemic.

Gotcha. Perfect.
Finances finance team in placealignment. What's another one?

Yeah, mindset really quickly on that. Mindset
is a big issue and its own. Andthe key thing there is we live
along a continuum of scarcityand abundance. And sometimes
there are days when we feelincredibly scarce things outside
of our control, we can't get ourproduct, our co-man's not
replying to us. I'm not gettingpaid by my customers that can
toss you into a really badmindset, generally called

(12:30):
scarcity. And yet, if you cansee a longer term, so yeah,
manage your day to day actively,I really want you to be focused
on cash and all those keyimportant KPIs driving your
business. And yet if there is away for you to continue to have
a long term vision, and longterm can be six months, it can
be 12 months, whatever that bitesize piece is that's right for
you, I think you have your bestchance of stepping into an

(12:52):
abundant mindset. And if you'vedone the work, if you're
supported by Brad and his team,and then someone like me or
others helping you, you're morelikely to be there. So with your
mindset, finance team alignment,and then your physical energy,
realizing any financing processtakes time, you need to show up
in your best, and you need to beavailable to respond. Nothing

(13:13):
kills a deal process liketime-creep, and not responding
or communicating on a timelybasis. And when you're working
with Brad and his team, I knowyou're gonna get the data
quickly. The question is, how doyou really massage it and use it
to keep pushing you along in anytype of either equity or debt
financing process? So those arethe key things there.

Love it?
Financing team alignment,mindset. Next one? Well, yeah,
energy and availability, andavailability. Perfect.

So that's what I've got for them there.

So then I think the last one, I would say from
outside of us getting actuallyinto the documents and
financials and requirements, Ithink for me is this is like
anybody for the you know,networking relationships, right?
Like, Oh, absolutely. Pleasealways be shaking hands always
be connecting with people youdon't know who will refer you to
the clearly the next business,the next vendor, the next person

(14:07):
that could be your investor orwhatever. So just clearly as a,
you know, as an entrepreneur,business owner, understanding
that, you know, networkingdoesn't need just to be with
current sales and customers.
It's also financing networking,right, like bank, local banks,
small banks, getting involvedwith those, you know, some
brands we've dealt with in thepast, basically, were able to
get SBA banking loans kind ofmuch earlier in the process than

(14:28):
they ever would have, from whatI typically see because they
create a relationship with asmall medium sized bank and kept
bugging them and kept dealingstuff. And then over time, they
saw some improvement andunderwriting approved them,
which is great for them. So,relationships, so yeah,

and I'll just add one sentence to that what you
highlight is, oftentimes, Ithink a lot of us as founders
and sometimes service providersin settings, one sentence we can
use to end a conversation is andBrad, hey, if this is not
something you can do, where aresome other places I could go.
That question can change thedirection of your business

(15:06):
fundamentally, I've gottenbecome aware of more financing
sources, because I'm moreactively asking that,
particularly in the FinTechspace, which is ever-evolving.
It's expanding, contracting andeverything. So please, yeah, do
ask that question. If this isnot for you, where else could I
go? And nine times out of 10,you're gonna get a good
recommendation?

Yep. Awesome. All right. That's some great kind of
action steps and tangible typesof things. So let's get into
kind of, you know, what isrequired from a documentation
standpoint? Um, the loanapplication process for most of
these types of debt financingloans we've discussed?

Yeah, perfect. So let's, the way I like to do it
with customers is I do it in twophases. I start with a really
core set that can be applicablefor anything, or nearly
anything. And then I go onelayer deeper, because a key
thing is, most people don't liketo prepare documents, and they
don't like to fill outpaperwork. So I try to make it

(16:02):
as painless as possible to dothe least amount of work to go
to the most amount of financingsources available. And then when
I identify what most makessense, then I'll go one layer
deeper. And so what does thecore set look like for most of
us? So right now we're recordingthis in April 2023. It's a super
interesting time of year to bedoing this recording. So I

(16:24):
wonder, Brad, when you think ofyour clients, how many of them
have filed their 22 tax return?
Like what percentage, theircorporate?

probably a third.

Okay, probably a third. Let's just talk about
that one for a second. So almostall financing sources, well, all
the term loans, all the SBAloans, sometimes in other
working capitals, they might askfor tax returns for information
purposes. We all get to makechoices. I was on it, I was that
guy on extensions for severalyears, it's kind of what I
learned. And it's what I knew,now, I'm more faithful about

(16:55):
filing at the first deadline.

Here's my recommendation (16:55):
if you had a better year and 22,
than you did in 21, it's alwaysa great idea to file as soon as
possible. It's always a greatnow, you might not like it,
because you might have to paymore taxes, and you want to do
that. And yet, if it was abetter year than last year, it's
going to open up your financingoptions. More broadly, and

(17:17):
particularly, if you'reprofitable, it's always good to
file taxes at the, at theregular deadline. If you're
profitable for the first year,in 2022, and a lot of you
probably were, you might havehad a banging 2019, if you've
been around for a minute, andthen 20 and 21, you were in the
red. And for all the reasons wemight know. But if 22 Was your

(17:38):
true recovery year, and it'sprofitable. If you haven't filed
your taxes, I really encourageyou to do it, because more opens
up for you, particularly in theSB and other loan areas. So the
first document is the taxreturn. So lenders, banks and
SBA lenders are going to look atthree years, whatever the three
most available are. So if youfiled 22, it's 20 to 2120. If

(18:00):
not, it's 21 2019. And then inlieu of tax returns, they're
going to ask for year end 22financials,

Gotcha. I was gonna ask.

If you haven't filed your tax return, and you
don't have 22, sewed up andbuttoned up, which I can imagine
only a couple of people, if any,then that would be problematic
for you to move ahead. So taxreturns, that's the first thing
that corporate just to quicklymention, personal tax returns,
those do have a play in lending,not so much in the working

(18:33):
capital space, in fact, hardlyever. And yet, if you if you
filed your corporate on on themarch 15, go ahead and do
personal April 15, on theassumption that you can afford
to pay if you have to paysomething additional, personal
less, less important in overallthe corporate are really the key
ones. So that's where it is ontax returns. In some rare cases,

(18:53):
Brad, if you have some largerclients that are $10 million
plus or so, banks or others willlook at prepared financial
statements being more importantthan tax returns. So if you are
in that category, or you'recoming up to be there: $10
million plus something to keepin mind and worth spending the
extra money because the lenderswill want to see that level of
detail. Yeah, so that'severything in the tax return

(19:17):
bucket. Again, here we are inApril. So now we're far enough
in 2023 that everyone asks forinterim financial statements.
And usually that operates in the90 to 120 day window, sometimes
a more compressed timeframe. Sowe're now we've now passed over
90 days into 2023. So again,bank loan lenders, again, these

(19:38):
these are the highest amount ofdocument requirements, right SBA
and commercial lenders. Sothey're going to ask for year to
date financial statements. Soparticularly in this time of
year now more than ever beenengaged with Brad and his team
and having that monthly call,being aware of how was January
How was February really, reallysuper critical. One little pro
tip if it's a weak quarter foryou versus the rest of the year,

(20:01):
something to before you send inthose documents, educate your
finance source about why it isand how it is. And one way to
overcome that and to make itless of an issue for you is to
compare it in the similar periodlast year. So if you have
January, February, March 23, andit's higher revenue and higher
income, or a lower loss thanJanuary, February, March 22,

(20:24):
even if it's not enough toafford something, it's still
something you'd want as part ofa package because it will be
asked for if it looks relativelyweak, compared to what a full
year has historically lookedlike for you.

Yeah, and I just think on top of that, compare
comparing, right, so as yourthis has come to the education
of your financial reports ofyour tax returns of when you're
profitable, not but always, whenyou're looking at different
reporting periods. Right.
Understanding, wow, I killed Q2,Q1 was down, or it was lower
than my forecast. But I was 300%up from last Q1. That's right.

(20:58):
Right. That's a story to tell itis. And then hey, I have this
plus I have POS and thingscoming in. Plus we're doing this
the upcoming quarter. So whenyou you know, create the
relationship, you have thoseconversations guys here that we
went above this, our queue isgoing to be like this a few
three. So that that gets theattention of people, right. And
then that's the big thing. Sounderstanding that story. This

(21:19):
is storytelling as well, this isjust as much of storytelling and
nuance and art, and it is purescience and numbers.

Brad I can't agree with you more. And that's often
a missed opportunity. A lot ofpeople will let an outside
funder plug into their QBO,which is required mainly for
FinTechs. Right? And yet, ourbig opportunity is to control
them not, dare I say controlthat have an outsized influence
on the narrative. Particularlyif there's something you know

(21:49):
that someone could say, what'sthat, like if you had a rotten
Q1, just because you did a hugemarketing initiative that fell
flat. And you're never evergoing to repeat that again. It's
like, what was I thinking Ihired some influencer, and it
just didn't work out. Well,that's a one time expense. And
that should be portrayed as aone time expense and say, "Hey,
I'm never doing that again."Another example is, you hired

(22:12):
the most amazing VP of sales,and he or she did not work out.
And you're never going to dothat, again, you're going to
handle it on your own. That'sanother thing that could be
added back and needs to bediscussed. So really, please, I
invite all of you never justsubmit your numbers, take some
time and write a thoughtfulnarrative that says, here's,
like, kinda read the key to thetreasure map, right? This is the

(22:34):
guide saying, here's the way youcould look at these numbers to
determine my strengths are notright for this type of
financing. And yet, we knowunderwriters are human, they're
going to make mistakes, BusinessDevelopment offers can make
mistakes in looking at file. Soto the degree you're presenting
your best face forward, It looksjust like a college application

(22:56):
essay, and really highlightingthe most important things and
mitigating what could beconstrued as either weak, or not
serving your interest on gettingwhat you need. So that's really
a critical thing. And that rightup can make the difference
between a yes and no or not now,

Tax returns, interim financials, most recent
period, what else?

In some cases, your personal credit score. And
the way you can do that is youdon't have to pay for it. You
can go on credit karma, creditsesame, places like that. We
know that they're not perfect,but they're pretty indicative.
When you do a self pull of yourcredit score, if there's stuff
that needs to be cleaned up, orstuff that requires an

(23:40):
explanation. So I wouldn't looknot just at this, well, if it's
a score above 700, looking justat the score, you're in the
clear, nothing to worry about.
If it's sub 700, for any reason,and you can trace as to why it
is hey, I just had to use a lotof credit cards to finance my
business. Or, Hey, I took my eyeoff the ball at the holiday
time. I have a 30 day late inDecember, that toss me down, get

(24:00):
ahead of that explanation too.
Right. And usually, that personwho who explains it first versus
them asking you, it always is abetter look. So the self pull of
the credit report andunderstanding if there's an
issue to be addressed and havinga proper explanation about it is

(24:21):
a great way to get prepared tobecause no one likes surprises.
Now the key thing is everyone'sgoing to do background check.
And Brad this came up now evenmore because of the fraud that
was committed in the PPP andEIDA loans. Yeah, particularly
in the SBA world, but all aroundI see more and more providers
doing background checks. So Ithink you can go to different

(24:45):
sites like was it likereputation.com or something like
that? Yeah, if you have anythingin your past, anything that
could cause an issue eitherbecause of a crime or some type
of you know whether felony -people who've had felony
convictions can still getfinancing. And usually it's
about getting out ahead of it.
Everything counts, even thingslike speeding tickets, DUIs can

(25:08):
be an issue. As long as you getout in front of it talk about,
"hey, this did happen. And yet,that's not who I am today."
That's really a thoughtful wayto control that. And oftentimes
people overlook that. And itsurprises can come up in
underwriting because backgroundchecks aren't pulled till way
down in the process. And no onewants to do all that work, and

(25:30):
not have a successful result. Soa couple of other last things,
depending upon the type offinancing, you're going for a
lot of working capital you mightget with your receivables and
inventory. So really looking foryour aging, A/R aging, typical
schedule and the A/R detail.

(25:51):
Some people ask for details,some people just ask for the
aging report. And then really aninventory detail as well. Help,
those are reports probablypeople very well inventory, they
very rarely review it right, I'msure you get very few requests
on that, I think more peoplecould pay more attention to it
for proper management. So that'sgoing to be for a lot of your

(26:12):
working capital and fintech onesthat are looking at that. And
then sometimes for other typesof specialty financing, it could
be purchase orders, etc. And afinal key area is if you're
asking for refinancings, orasking for refinancing of debt,
that's often a use case of termloans, or or SBA loans, having

(26:34):
those original notes.

Gotcha. So what about what about, um, forecasts,
budgets, models?

Absolutely. Thank you. So when you think of banks,
most banks and institutions arebackward looking, they're
looking at historical documents,what you've done to date. Most
FinTech and working capitalproviders are forward looking,
because they're looking what canyou do in the future? So it's
often the case that forecastsare done, and then never looked

(27:03):
at again, right? Do you I waswondering Brad? Do you when you
update forecasts, you do it onthe request of the client? Or is
that an annual process for you?

It's it, we have basically have a custom scope of
work for every situation, right?
Some people just want us to doit once, not update it, update
it when they want it to just tosave my money. I think, you
know, the best case scenario,those that we put together our
12, 18 month, you know, budgets/forecasts updated each each
month, have it rolling comparedto where it was, you know, make

(27:34):
sure to reconcile to the chartof accounts so that we can look
at target and budgets, target tobudget or budget to actuals
Well, each month. So I think, ata minimum, if you really want to
get ahead of it, I think youknow, getting one in place, and
then updating it quarterly andagainst months is probably the
minimum to where you're at. Butagain, I think getting in place,

(27:55):
having a team that understandsyour chart of accounts or books,
having your forecast slashbudgets slash model tied to the
chart of accounts, so you caneasily compare budget to
actuals. Those practices aregoing to help you tremendously
the business owner going forwardwhereas some folks come in and
give you a model of charging 10grand for five year model hoping

(28:16):
to raise money doesn't alignwith anything super complex 28
tabs of Excel, nobody knows howto do it, this person's gone.
Formulas galore comes to us.
We're like this is way toocomplex to simplify. I think a
big part of this is trying tokeep it as simple as possible.

I totally advocate for that. In fact, I think
there's really two forecasts,right, there's the internal
detailed model, which helps youfor your operating in your
management decision making. Andthere's an external summary,
which is really all you need toget that ball rolling, they'll
ask for more if they need it.
Outside of the equity world andthe debt financing, rarely, they
care more than just athoughtfully produced summary,

(28:54):
p&l, and a summary balancesheet. Usually, it's not crazy
detail that's needed. So again,you might want to have an
internal and external, I totallyget what you're saying about
quarterly updates at a minimum,specifically for all of you out
there who are on a high growthtrajectory. And I'll add just
one thing or as major conditionschange, right, if you have a

(29:15):
pivot if you've launched anamazing new product, if you've
just gotten into a trade accountwith a ton of doors, which is
gonna double really important tosupport getting that new
forecast in place

if you hired a very expensive internal hire
things like that any kind ofmaterial dollar changes I agree
with Keith like that materiallyimpacts your your your budget,
update it so good. Yeah. Allright. So is there anything else
here because I wanted to touchon some kind of just general
kind of accounting financialstatement kind of, you know,
mistakes,

please, that's good. Let's move into that.
That's pretty much the core bigset out there. And just know
that most people are going towant to understand projections.
They're going to focus on thenext 12 months more than in
anything,

Yep, exactly. And what's great about like what
you're saying about these Lucarequirements, literally, if you
work with somebody likeAccountfully and acounting team
or have a proactive situation,every one of the reports are
easy to pull clearly,separately, your credit reports
separately, your individual taxreturn and those types of
things. But everything else, youknow, we can pull some, you
know, all these reports for aclient within 15 minutes. And

(30:22):
that's what's great when youhave or are proactive, and have
things in place and set yourselfupmentally for that.

That's when your investment really pays off,
doesn't it? Because having theseat your fingertips and ready to
be used. Yeah, because havingthem accurate, and timely is the
most important thing.

Yep, yep, yep.
Yep. All right. So from a kindof financial statement
perspective, pure, like if yousent your financials, your p&l
over to Keith, or any kind of,you know, underwriter to look at
kind of several things to bekind of aware of number one is,
I'll just say kind of incompletefinancials. What does that mean?
That basically means that notall the data is contained in
there. But what are examples ofthat? Number one is, you don't

(30:58):
have all your bank accounts onyour balance sheet, you don't
have all your credit cards onyour balance sheet, you don't
have all the transactions up todate through the most recent
month and reconciled. You mayhave skipped six months, all
basic things that a professionalbookkeeper or accounting firm
should should do for you. Right?
So number one is just havingcomplete financials reconciled

(31:20):
to the most recent quarter ormonth or whatever they need. And
make sure that that all theassets all the liabilities, the
completeness accuracy, is therefor your your your business.
Number two is cash versusaccrual. Oh God, what does this
mean? cash basis accounting isessentially when ever a money

(31:41):
comes in or money comes out, youbasically put it on your p&l or
your balance sheet, right? It'sonly doing transactions or when
things move in and move out or acredit card charge happens.
There's things like that accrualbase really factors in kind of
two big things right accountsreceivable and accounts payable.
You invoice KeHe for 100 grand,you put 100 grand on your

(32:01):
receivables, right, your revenuegoes up by 100 grand, your A/R
goes up by 100 grand, thatwouldn't be on your p&l or
balance sheet during When iscash based until you actually
get paid, right? Same thing onthe payables, you get a bill for
accounting for legal for 3PL, orwhatever that needs to be
factored into your to to yourfinancials, what people are

(32:22):
going to want to see is accrualbasis. Why? Several reasons. One
is a complete view of everythingthat you've incurred and earned
to date, right? It shows what'sgoing on on a revenue basis.
What do you have to collect?
Like you said, A/R financing?
Right? What bills have youincurred? What is your liability
on those bills? What's yourcredit card balance, all that
type of stuff that kind of comesinto play? Number two, and
almost more importantly, isyou're able to kind of compare

(32:46):
month over month in terms of,you know, what is your fixed
overhead each month? What isyour margins each month? That
type of stuff, right? Like a bigpart of big time when people
come to Accountfully or talkedabout is when they're like my
bookkeeper doesn't know how tocount for inventory COGS, I pay
20 grand or 50 grand forinventory, that outflow goes
right to the the p&l in COGS.
And then my next outflows fourmonths later, so you don't have

(33:09):
any consistent look way oflooking at your margins month
over month, right your costswill be factored into what was
sold that month. So a big partof this is moving into accrual
basis financials for yourbusiness, from a financial
reporting standpoint, FYI, thatneeds to be done, you can still
have a tax return on cash basis,if that's what your tax CPA

(33:31):
requires, or allows you to dojust an FYI doesn't do the same
thing. But for internalmanagement reporting purposes,
you need to go to accrual basis.
So if you're on cash, if you'relooking at raising money the
next 12 months, you got to moveto accrual at some point, like
in the near term.

Yeah, and I really feel strongly about that too
Brad. I have a question for you,though. Have How frequently do
you have approval financials fora company that show
profitability? And then on thetax return, it shows a loss?

It's not as so it's really interesting when
you're audited for inventorybased businesses, most of them
we match up and try to getaccrual accrual accrual fund
internal accrual tax. Reallyaccrual on financial versus cash
internally is more prevalent. Ithink, from a tax planning

(34:23):
standpoint when you're like aservice provider or an agency,
tech startup, things like that.
Because you can like just onequick thing and basically if
you're when you buy inventory,even if you pay cash for it
before 12/31 you still have toaccount for inventory at-hand,
you can't just like write it offon your tax return basically so
like

that because you're doing the physical counts
right versus Correct. cashoutflow Yeah, otherwise

everybody would buy inventory at 12/31 there you
know, the IRS ever have lossesfor tax purposes. So like, I
think that the gain of beingcasualties accrual and taxation
versus internal like isn't asbig on that aspect, but there is
that exists and that but that'sYou know, we have a tax even
house. And that's where like I'dsay, go talk to our tax team, I
don't even know like there'sthere's so many nuances that
come into play in it. But interms of what he's saying is

(35:09):
when you're doing that, tryingto figure it out, and
understanding, you may havespecific reasons why doing cash
basis works better for you toshow profitability last year and
your tax return. And then youtell the story from the accrual
basis, internal financialstatements, your profit and
loss, by the way, or yourforecast should be on accrual
that then reconciles from yourp&l to basically your cash

(35:30):
balance is really what peoplewould be looking for with that.
So. And then I think a coupleother things are number one is
inventories. As Keith said, likeinventory detail, buy that like
you should, number one,inventory is your biggest
resource of spend, right as aninventory based business, you
should understand what rawmaterials you have with finished

(35:51):
goods, etc. It doesn't alwaysneed to be completely reflected
in the financials in the balancesheet. You could have one online
for inventory, but they say youhave 250k in inventory here.
How's that broken out? And ifyou spit out an inventory
report, whether from aninventory system, whether from
Excel, here's what I have inthis product is practice
practices with this is rawmaterials, this is this, boom,
that's a huge win.

Add something on that, because finished goods
inventory is what's financial inor can you be used as a basis of
collateral. That being said,when you have specialty
inventory lenders, the othercategories, sometimes raw
materials, sometimes goods andtransit can be financed against,
but in the other settings, SBAterm loan lending abls, etc.

(36:38):
It's almost always only thefinished goods. So having a good
understanding of you know, justknowing the ranges, right,
because the timing effect can behuge, right? If you have, it's a
funny thing, SBA and term loanlending measures one moment in
time on that balance sheet,which of course was what a
balance sheet does. So if youknow, your inventory is going to

(37:00):
be massive, and that can beleveraged for collateral value
for something else. There'ssomething to be said about the
timing effect.

Absolutely.
Absolutely. And then a coupleother quick things of kind of
specifics. If you have bigdollar amounts for inventory
prepaids let's say that youprepaid 80 grand for inventory
for whatever reason. Having thatproperly accounted for as a
payable plus a plus an asset ieprepaid inventory. Sometimes you
don't probably account for it'son your p&l. And when it like

(37:29):
dude that's coming in, that's anasset, you just show that
accordingly. Those types ofthings go into play specifically
there. Another example is fromjust a pure kind of
functionality standpoint, right?
Let's say that you you spend ithave a ton of like a quarter
where you're spending a ton ofpromos out samples out to

(37:50):
various people everything. Andwhat you're doing is you're not
properly accounting for them orkind of counting that
information, those numbers thatcould materially impact your
margins, because samples shouldpromo should go to advertising
bucket not into COGS, right. Sothere's specific nuances like
that, that once you get thefundamentals in a complete set
of financials and accrual basedfinancials that then we dip and

(38:11):
dive into as part of ouronboarding, getting things in
place to help facilitate, but Ithink I have to just the the
core of it is bleeding,financials, accrual-based. From
there, we can get into detailsof everything and all that stuff
is going to help facilitateliterally what we're talking
about here with Keith.

can I ask you a super quick question expanding
on that? Absolutely. I had acustomer who has who's a
distributor. And he had theopportunity because of short
supply of one particular largevendor to buy eight truckloads
of this product in December andhe took it because the supply

(38:49):
had been so erratic throughout2022 that he decided to do it.
So normally when you do that,right if you're buying a
truckloads, but you know thatyou're not going to sell it.
It's a it's a bargain, or it's adeparture from normal course of
business where you're buying onea week, right? How you best
account for that? When you buy,is it? You I think he put it all

(39:15):
in COGS at once.

Yeah, the whole goal is you're matching the
expenses when they're actuallyincurred. So a lot of times
anything with COGS or anyvariable expense that is tied to
sales is really in that month,where those products shipped
out, was it services related tosales incur, right is that on

(39:38):
the balance sheet on the balancesheet is like a prepay or like a
prepaid expense then and thenamortize it each month if you
don't have like a really goodinventory tracking system in
place, going you know, currentlyand you need to get a good set
of month over month financialsdone from last year. And easy
way to do that is to understandyour average cost for All your

(40:00):
skews that you're selling rightincluded in lineup, you know,
raw material comment, etc. Andthen going back and looking at
your sales month over month andthen they say, Okay, it's for
the entire year I sold thismuch, and then make a mirror
with with your sales, right? Soyou kind of get some more
consistent margin. So similar towhat I'm saying when you're
saying here, I had to see thisprepay, and then that's going to

(40:22):
last over six months, well thentake that divided by six or
whatever compared to the volumeis so it just kind of gets more
smooth to Financials. The one ofthe things that people will
notice is like me seeingfinancials as accountant, I look
at a financial statement. I lookat huge like what are the
outflows? What are the extremes,right? Well, negative positive
Why is there a negative mark?
Why is there a negative grossprofit here what's going on? So

(40:43):
that I can tell within fiveminutes of looking at
financials? This isn't right,this isn't complete. There has
to be a reasoning behind thisright. So the whole goal is to
have very smooth month overmonth p&l balance sheet over the
last 12 to 18 months lookingbackwards. And then that kind of
sorta exudes confidence in injust the underwriter original
like, look, this looksconsistent. There's nothing
crazy for me to like, you know,blow my eyes out or start asking

(41:06):
questions.

Yeah, the reason I quickly asked that is because he
chose to put the full cashamount in COGS and December 22,
to lower his tax liability, andit nearly crashed our deal,
because his profitability camein lower. So I had to negotiate
with an underwriter and abusiness development officer for

(41:29):
a couple of hours on a Saturday,about how we keep the deal as
structured, because when youblow something like that, so
bad. Other than having going torestate it, we had to fight to
get it added back and then showthat he actually sold the
product in 2023. Becauseotherwise, we would have had to
make what's called a projectionsbased deal, versus one based on

(41:50):
historical profitability, andyou have to re underwrite
everything. So that's a case ofan extreme example of how you
can mess things up with improperaccounting.

Yeah, good. Good, good, good. Oh, that's great
example and great information.
So I think from here, I'mhopeful that kind of, you know,
from our chat last time oftalking the types in the
understanding and even gettinginto some of the current
economic climate of kind of somespecific action steps attack to
take currently, you know, evenon the intangible design,
mindset, team, et cetera,getting ready for that think of,

(42:22):
you know, you're getting marriedsoon, and I'm gonna buy a house
in less than 24 months, it's thesame process is getting your
credit scores in place,understanding your cash getting
things built up? What do I needto do? What do I need to think
about as part of it very similarprocess? If you ever want to buy
a house just tomorrow, becauseyou like this house looks great.
And then you go when you're notprepared? It's the same exact

(42:43):
process where you just get youract, you're like, wait, what's
going on? What do I need, Ididn't know that. And it can be
just a mess, and veryfrustrating. And to be frank,
very, like belittlingexperience. So be proactive in
it. And then outside of that thespecific, you know, reporting or
the requests, the tax returns,the the credit reports, the
personal information, thefinancials in place. And lastly,

(43:04):
just some specific kind ofaccounting and kind of financial
reporting nuances and justunderstanding of it, but so I
think that that is a really goodand comprehensive couple
podcasts here, Keith. It'sreally appreciate time. Any
other last words?

Yeah, again, I would just say, I'll say it
again, the proactive personreally has the best chance of
getting the best result, thefastest result, and, and the
most variety of financingavailable to them. So we hope
that, you know, I certainly hopethat this serves the
Accountfully community in someway. And because we're all here

(43:42):
to support you and help you growthe company of your dreams and
get you the right financing atthe right time and Brad
supporting you on all that ittakes to get you there as well.

Awesome, awesome.
All right. Keith Kohler, thanksagain. You're financing man, I
guess what financingman.com.
Great new brand and he's here tohelp and serve the community.
He's got a big passion for thiscommunity and I think he's just
getting started. So put him inyour Rolodex, Keith. Thanks

(44:12):
again. Really appreciate it.
Have a good one, Episode 30 ofThe Month End podcast. Hope you
all enjoy it.

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Episode 30: Keith Kohler • The Financing Man • Part Two

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Episode 30: Keith Kohler • The Financing Man • Part Two