Why You’re Doing ‘Finance’ Wrong, and What You Should Do Instead with Nate Littlewood

0:01Light that spark fire nation JLD here and welcome to entrepreneurs on fire brought to you by high level, the all-in-one sales and marketing platform. Today, we'll be breaking down why you're doing finance wrong and what you should do instead. To drop these value bombs, I brought Nate Littlewood into EO Fire Studios. Nate helps purpose-led e-com founders turn chaos and confusion with their finances into clarity and confidence. And today, we'll talk about why founders are terrified of their finances. We'll do a deep dive into what's wrong with how we approach our finances, a better way to think about our finances, and oh, so much more.

0:36And a big thank you for sponsoring today's episode goes to Nate and our sponsors. Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white label your own software. Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today. So Nate, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. Sure. Thanks for having me, JLD. I would say that I'm a big believer in the idea that success comes from subtraction, not addition.

1:24or put it another way, you know, less is more. So, you know, most founders believe that growth means doing more, more products, more ads, more channels, whatever. But I've found that often really founders turn a corner and things tend to work a lot better when we actually pair things back and get more focused on doing less things. Fire Nation, less is more, which is why we're talking about why you're doing finance wrong and exactly what you should be doing instead. And Nate, the reality is this. So many founders, they are terrified of their finances. They don't want to touch it with a 10-foot pole.

2:05They'd rather ignore it than address it. Why is that the case? Yeah. Well, firstly, you're absolutely right. I encounter that all the time. I think the best way to answer that is with a quick story. So I have a dog and I live in Brooklyn and that means most mornings I'm in Prospect Park walking my dog, right? And there's a number of other dog owners who over the years I've become quite friendly with. And there's this one guy, Andy, who has a dog who's about the same age as mine. And we've become quite close and we usually see each other a couple of times a week. And anyway, there was a day a couple of months ago where Andy came to the park and I could, you know, immediately tell that something was wrong.

2:46He's usually a very funny, you know, lighthearted, you know, incredibly personable sort of guy, but there was clearly something up on this day. And so I said to him, Andy, what's up, man? You don't see myself today. And he says, yeah, well, you know, I just went to the doctor and I got some pretty bad news. I was like, oh dear, this doesn't sound good. What happened? He said, well, I got these scans done and it turns out I've got, you know, a whole lot of calcium deposits in my arteries. And, you know, if you don't know, that's an early indicator for heart disease. And, you know, he went on to explain that there was good news here and that they caught it relatively early and, you know, still had a lot of opportunity to turn things around.

3:25And so he was then telling me about how he'd implemented some lifestyle changes, his diet, exercising, and so on and so forth. Now, you know, I obviously didn't bring this up with him at the time, but I think you and I could sit here and agree that Andy's life expectancy and probably also his health span both improved as a result of that intervention and him, you know, changing his behavior. But where the story gets really interesting is he then went on to tell me about this friend of his who he had gone to school with. And Andy's in his mid-60s, by the way. So this friend is presumably a similar age.

4:00and he said, yeah, this friend of mine, she hasn't been to the doctor for over 20 years. And I was like, what? How can you not go and see a doctor for 20 years? And he explains to me that she just doesn't want to get the bad news. And when her time is up, her time is up and she'd rather live her life without knowing. Anyway, I walked away from this conversation and thought, oh my God, that is the perfect analogy for so many founders and their relationship with their finances. You know, a lot of times getting into our financials and looking at them can feel like we're being judged and being judged is often not a pleasant experience, especially if you are a mission or purpose-led founder and, you know, confronting the financial realities is sometimes at odds with the narrative or story that you otherwise like to go around telling yourself and telling the people around you.

4:56It actually creates, it can create this phenomenon called cognitive dissonance, in fact. But anyway, the other part of the issue here is that most founders just aren't trained in finance. You know, they got into starting their business because they're visionaries, they're builders, they're marketers. And so, you know, when things get messy and they start running into problems with their margins or their crash crunchers or, you know, unexpected cost increases, whatever, you know, they panic and they're just not comfortable confronting these numbers. So a big part of what I do as a fractional CFO working with early stage e-com founders is I'm trying to basically create a safe space for us to have a conversation about numbers, for us to look under the hood, understand what's going on, identify the problems and and really take back control.

5:50Because from control, you get a lot more confidence and a lot more clarity. Well, I'm really glad you broke that down. And I'm glad to hear that your friend's taking some steps to improve his nutrition, his exercise, because he got the information he needed in a timely manner. And that's a great thing. I thought you were going to take the story in a different direction because I have a neighbor, Dave, and we walk our dogs every day. And when I first met him, I was like, I really like this guy. We're having the same conversations. like we were really getting along and then my dog pooped. And I, of course I picked up my dog's poop and he's like, Oh, you don't need to do that.

6:24Just, just let, you know, let, let, let, let, let poop lie. And I was like, Dave, I could not disagree with you more on this and this could actually be a big factor in whether we're going to be friends or not. So I said, I'm a big believer in picking up poop because otherwise my dog will roll in it. So let's just get this out of the way now. So we made it happen. I'm all about picking up the poop too. So we're on the same page there. But Nathan, there's a moral to this story. It's, you know, tackle these problems head on. I could have just like ignored that with Dave and like kind of just like allowed poop to just gather up on my street for the rest of, you know, our existence here.

6:57And none of us would have been happy, but you've got to face the problems, Fire Nation, with your finances. You got to look under the hood. You got to know what's going on because this is the lifeblood of your business. Don't end up living on a poopy street just because you're not willing to look under the hood. Now you've talked to us, Nate, about the ways not to look at our finances. What's a better way to look at them? What's a better way to think about our finances? Yeah, so a better way to think about your finances is to really treat them as the GPS for your business, right? So not only does finances help you understand where you're at right now, but it also allows you to see what's ahead, choose your route and avoid potential roadblocks or, you know, potholes in the highway.

7:46So listen, I often say to founders that starting a business and going ahead and running it for multiple years without a financial plan and without understanding the numbers is like, you know, it's equivalent to jumping in your car and driving for three days without Google Maps and having absolutely no idea where you're going, right? Sure, you might see some cool stuff along the way, but God only knows where you're going to end up. And, you know, there's a very, very low probability that you're going to end up in, you know, the place that you ultimately wanted to be. So, you know, when used effectively as, you know, as a tool, finance really allows us to plan and execute on a much better journey.

8:30And it allows us to pick a path that is optimized for fuel efficiency, i.e. we can minimize cash burn. It allows us to optimize for avoiding common crash hazards, i.e. we can reduce risk. We can use it to optimize for the best scenery. In other words, we can open up new growth opportunities for ourselves. And we can also optimize for, let's be honest, like the most comfortable ride as well, i.e. reducing founder stress along the way. So, you know, a big part of what I focus on is helping founders basically see and leverage their financials as a strategic asset that they can use to go on and grow their business more effectively.

9:16And by the way, if you can help these founders reduce their stress, then guess what? They can get back to doing what they do best, which is actually running the company, which is actually coming up with ideas, having conversations, doing the things that are actually benefiting the company itself. So think about that, Fire Nation. And we have a lot more to talk about around this topic when we get back from thanking our sponsors. Okay, let's talk about a platform that's completely changing how entrepreneurs are running their business, and they are also our featured partner, HighLevel. If you're an entrepreneur, coach, agency, or course creator looking to grow faster and smarter, HighLevel is the all-in-one platform that replaces your entire tech stack.

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13:02So Nate, we're back and you're a CFO. You're obsessed with time. You're obsessed with time management, both in good ways, by the way. But tell us why. Yeah, good question. So I'm sure you've heard the expression that time is money. But the truth is that money is replaceable and time is not. So my fundamental kind of view or philosophy on this topic is that time is actually more valuable than money. And how this kind of relates into my approach with working with brands as a CFO is when you look at the time and money being invested in these businesses, especially when we're talking about early stage bootstrapped businesses, which is, you know, the type of businesses and founders that I tend to deal with.

13:54So if you're a founder, then I am willing to bet that you're a talented, capable, intelligent, and probably quite a highly motivated individual who's probably not going to have a lot of trouble walking into a six-figure job working for someone else, right? Now, if you compare that to what your startup is actually paying you, then the delta is what we call an opportunity cost, right? And I'm willing to bet that, you know, if you've been working on an e-com brand, especially in, you know, the first few years, then your salary opportunity cost is probably in the order of hundreds of thousands of dollars.

14:33And if you had a team of two or three founders, and we're talking about this over, you know, a multi-year period, it's very easy to see how you could get to, you know, a seven figure opportunity cost. We could be talking about millions of dollars here. Now contrast that with the amount of money that actually gets invested in these businesses. Often it's, not very much. It might be a little bit of credit card debt. Perhaps it's a small family and friends round to the tune of tens of thousands of dollars. But the point is that for most of the early stage bootstrap folks that I deal with, the value of the time being invested is significantly more than the value of the money or financial asset being invested.

15:19And as a CFO, I care about metrics like ROI, and I want to make sure that any resource that we have is being well invested. So one of the first exercises that I take my clients through is a time tracking exercise. I encourage them to use this tool called Toggl, T-O-G-G-L. It's actually a free plugin. It connects to your Google Calendar. And it's very easy when you're running that to see how you're spending time across operations, supply chain, product, customer service, marketing, you know, whatever. Anyway, I've been through this exercise a number of times now with my founders. And inevitably what we realize after doing it for a month or two is that these founders have aspirations of generating financial rewards from, you know, working on their company, which are usually, you know, hundreds and hundreds of thousands of dollars a year.

16:09But when we look at their time studies, we see that they're doing jobs that are worth 10 or$15 an hour. Yeah, that's a 20 to$30 ,000 a year salary. And so then we have to have a conversation like, how can you expect to be compensated hundreds of thousands of dollars a year, when you're spending a large chunk of your time doing things that you could be outsourcing for 10 or$15 an hour, right? Like it just doesn't, doesn't make sense. This, this math doesn't work. So I have found that a lot of financial problems start off as time management problems. You know, as, as founders were often spread too thin.

16:46We don't have time to be chasing invoices, negotiating terms with suppliers or, you know, inventory. So one of the highest leverage things that I do as a fractional CFO is I help founders prioritize. And I help them basically identify what are the 90 % of distractions and shiny objects that they should be ignoring. And what are the 10 % of opportunities that they should actually be focused on. And in doing so, what I tend to see is that not only does their financial performance of the business improve. But the founders that have been through this process usually report feeling a lot more energized and engaged with their own company and just enjoying working on their business a lot more.

17:32So yeah, that's why where and how I got so obsessed with time, I guess. We've been talking about a couple of mistakes that founders make on a pretty consistent basis, you know, tracking or not tracking their time, obviously being one of them. What's one other major mistake that you find a lot of e-commerce founders are making over and over again? Confusing profit with cashflow and not realizing that, you know, profitability is a completely different kettle of fish to cashflow and cashflow forecasting. They're both important. Like we need to have a P &L forecast and a cashflow forecast, but they're not the same thing and very, very different exercises.

18:16You know, and this is especially true for e-com businesses that carry a lot of physical inventory. One of the most common mistakes that I find with this business is that they are sitting on way, way more inventory than they actually need to. And this impacts a metric called the cash conversion cycle, which essentially measures how long it takes your business to convert cash from payments for inventory into receipts for customers. And businesses, you know, founders tend to extend this cycle for much longer than it needs to, which means that they limit themselves in terms of the cash that they have available for other growth initiatives.

19:01And another big, big impact of this is that they often ignore the financing costs that come along with having all of this inventory. Equity or angel VC investing is a lot less common in this industry. Most of these businesses are financed with debt. And I find that founders tend to have a pretty poor understanding of how the cost of debt really impacts their profitability. So that was kind of a long-winded answer in a few parts to it. But I guess I would say it's cash, cash conversion cycle, and the cost of carrying the often elevated levels of inventory that they have. Nate, we talked about founders being terrified of their finances, about what's wrong with how we approach our finances, mistakes that we make as founders over and over again.

19:55Why to be obsessed with time and time management, because that can really benefit us. Of all these things we talked about, what would you say is the one thing that you would really want our listeners, Fire Nation, to walk away with from this conversation today? I would say it is that you need to be as ruthless with investing your time and thinking about time investment as you are with, you know, your finance or money related investments. Your time is a scarce asset. And like I said before, its value that is being put into this business is commonly a lot more than the financial investment. So be ruthless about how you're allocating it, investing it, like track it and make sure that if you're investing time in marketing, that you're getting marketing results.

20:46If you're not, then maybe you shouldn't be the guy on the team who's doing marketing. And maybe you should delegate that or outsource and find some other part of the business where you can actually move the needle and add value. Nate, have you ever considered calling yourself a CFFO, a Chief Fractional Finance Officer? A CFFO? Chief Fractional Finance Officer. In my industry, we tend to go by the title of Fractional CFO or FCFO, I guess. But I don't know. I guess both work. Yeah. Just planting a seed, planting an idea. Because, you know, I like the ring of a CFFO. and if Fire Nation likes what they're hearing from you and they want to connect with you and learn more, what is your call to action for our listeners today?

21:34Sure. If folks are interested in learning a little bit more about what I do, then you can head on over to futureadycfo.com. One of the things that I am offering there, and this really stems from my passion in helping and supporting early stage founders, is I like to give a lot of stuff away. So if you go to the, I think it's the product or services section of my website, there's a whole lot of content you can download. There's models, there's cashflow templates, there's debt lists, there's investor databases. There's all sorts of goodies that you can find there for absolutely free. A big part of what I'm doing and what I'm all about is helping earlier stage folks get off the ground.

22:20I kind of exist to ensure that finance is not the reason that your business fails, right? There's plenty of other reasons why you may run into trouble and, you know, that's the case and so be it. But I do not want finance or a lack of financial, you know, acumen or awareness to be the reason that your business fails. So I've got a lot of stuff out there to try and help folks avoid that. Fire Nation, you're the average of the five people you spend the most time with. You've been hanging out with NL and JLD today. So keep up that heat. And for links to everything we talked about, visit eofire.com.

22:55Just type Nate in the search bar and the show notes page will pop right up. And Nate, thank you for sharing your truth, your knowledge, your value with Fire Nation today. For that, we salute you and we'll catch you on the flip side. Thanks, JLD. Appreciate it. Hey, Fire Nation, a huge thank you to our sponsors and Nate for sponsoring today's episode. and Fire Nation, what can 4 ,000 of the world's most successful entrepreneurs teach you? How about how to achieve financial freedom and fulfillment? My first traditionally published book, The Common Path to Uncommon Success, is a revolutionary 17-step roadmap that will lead you to the lifestyle that you've been dreaming about.

23:32This book took me 10 years of accumulating the genius of the world's top entrepreneurs, and you can get it all in one place when you visit UncommonSuccessBook.com. I'll catch you there. We're on the flip side. Are you ready for the ultimate all-in-one platform for entrepreneurs, marketers, coaches, and agencies? Build funnels, automate follow-ups, manage clients, and even white label your own software. Say hello to our featured partner, High Level, and visit highlevelfire.com to start your free trial today.