The Month End Podcast

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

April 28, 2023 Brad Ebenhoeh Season 1 Episode 30
Episode 30: Keith Kohler • The Financing Man • Part Two
The Month End Podcast
More Info
The Month End Podcast
Episode 30: Keith Kohler • The Financing Man • Part Two
Apr 28, 2023 Season 1 Episode 30
Brad Ebenhoeh

The Month End provides emerging inventory-based brands real life knowledge in the accounting, finance, and operational world. Our guests are not only similar brand founders and owners, but key stakeholders and contributors to the industry. Each episode provides a glimpse into the vast experience and insight from its guest’s unique backgrounds in a casual, conversational tone.


• • •


In episode thirty, Accountfully's CEO and Partner, Brad Ebenhoeh, continues his in-depth conversation with Keith Kohler, the Financing Man.   Now that the various stages of businesses and their associated financing options have been identified, Keith lays out the action items to execute your plan.  You will learn what you need to do in order to start your financing journey, and identify the requirements surrounding next steps.  Dive in and see what you need to set yourself up for. financing success.


MORE INFO and VIDEO RECORDING:  www.accountfully.com/podcasts/episode-thirty-keith-kohler-financing-man-part-two

TheFinancing Man Website:  www.financingman.com

Schedule a call with Keith:  https://www.financingman.com/contact

• • •

MORE RESOURCES

More CPG Resources:  http://bit.ly/Accountfully_Resources​


Use the power of your inventory to grow your business -

Download The Inventory Handbook:  http://bit.ly/TheInventoryHandbook​

For more small business and CPG- focused resources, visit Accountfully's resources page, where you will find helpful articles, guides, eBooks and more.
• • •
Follow us on social media to take advantage of even more info and news.

Show Notes Transcript Chapter Markers

The Month End provides emerging inventory-based brands real life knowledge in the accounting, finance, and operational world. Our guests are not only similar brand founders and owners, but key stakeholders and contributors to the industry. Each episode provides a glimpse into the vast experience and insight from its guest’s unique backgrounds in a casual, conversational tone.


• • •


In episode thirty, Accountfully's CEO and Partner, Brad Ebenhoeh, continues his in-depth conversation with Keith Kohler, the Financing Man.   Now that the various stages of businesses and their associated financing options have been identified, Keith lays out the action items to execute your plan.  You will learn what you need to do in order to start your financing journey, and identify the requirements surrounding next steps.  Dive in and see what you need to set yourself up for. financing success.


MORE INFO and VIDEO RECORDING:  www.accountfully.com/podcasts/episode-thirty-keith-kohler-financing-man-part-two

TheFinancing Man Website:  www.financingman.com

Schedule a call with Keith:  https://www.financingman.com/contact

• • •

MORE RESOURCES

More CPG Resources:  http://bit.ly/Accountfully_Resources​


Use the power of your inventory to grow your business -

Download The Inventory Handbook:  http://bit.ly/TheInventoryHandbook​

For more small business and CPG- focused resources, visit Accountfully's resources page, where you will find helpful articles, guides, eBooks and more.
• • •
Follow us on social media to take advantage of even more info and news.

Brad Ebenhoeh:

Welcome to The Month End CPG community chat, The Month End will provide emerging CPG brands real life knowledge into the accounting, finance and operational worlds. Our guests will be key stakeholders from those same brands as well as other key contributors in this. Right Welcome to Episode 30 of The Month End podcast. We have Keith Kohler, your financing man back from the prior episode to chat, more information on kind of action items and next steps and the the debt financing topics we talked about in episode 29. Hey, Keith, long time to talk.

Keith Kohler:

I know. But it's been so long.

Brad Ebenhoeh:

At least we have different short times a different day that we do. All right, well, we're looking forward to get going. So I think first things first, for the listeners out there that are listening to this stop, pause, go back, listen to episode 29 that'll get you kind of set up and understanding the types of business entities and types of financing we discussed. It's about an hour long, it's super informational. It's great. Please listen to that, then come back to this. But before we get started, again, Keith, kind of just give them more background. You know, reintroduce yourself to the audience. And then we'll kind of you know, moving into summarizing kind of a previous podcast, a recording of kind of types of entities and things we talked about, then we'll get into the bulk of this conversation. So go ahead.

Keith Kohler:

Yeah, my pleasure. So thanks, again, Brad, it's great to be here with you and to be in supportive, the larger Accountfully community. And as a reminder of introduction, the way I support founders at different stages of their development from startup through to lower middle market is I help them essentially get the right financing at the right time, advise them on what could be available to them at different stages of their company's growth. And then help them go get those deals, whether through referral, or by actively participating in the process. And my overall most important promise to everyone out there is that I can meet you where you are, and guide you along your financing journey and meeting you where you are means whether your experience in finance is small or beginning, or whether it's super advanced, there's a way I can help you make sure that you're getting exactly what you need at the right time. And we also recognize that your journey might not just be the one on getting financing, there could be other ways to support your switches with your mindset or other elements that contribute to how you show up in managing your business finances, or how you might be best suited to go after a financing process. By way of additional background, I'm an adviser to many companies in the CPG space. And I'm also a seed and an angel investor and several as well. And the way I got my start in this business was when I was diagnosed celiac or gluten intolerant in 2005. That gave me my first real big reason why and important introduction. So it's personal to me, I want to make sure that this space does well gets the best available financing for their businesses to fuel their growth and meet their professional and their personal objectives. So that's essentially me, and what I stand for, and I'm really excited about today's topic, Brad, because I think you probably see it all the time. I imagine you're asked to support people on financing requests a lot,

Brad Ebenhoeh:

Absolutely. And I think you know, if you get one right? takeaway from this, listeners is be proactive. Don't wait 'til the last minute, I don't know how many times somebody comes to us. "All right, now I'm gonna sign with you Accountfully To get going, I need my books tomorrow, I need a five year financial model tomorrow." That's not how society works. That's not how a good service provider work. That's not how a good relationship works. That's not how you're going to really be able to secure what you need, you know, when you need it. So, but yes, we're constantly inundated with those requests and support and further, we'd love to help that and get it but I think having a really good comprehensive planning approach helps out with that with with the with the listeners and the brands out there.

Keith Kohler:

Yeah. And Brad, you and I have the same experience when I when people come to me for financing. Probably about two thirds of the time. It's, "oh, shit, I'm in a pickle," right? I have. "I'm stuck. I didn't plan for this." Or really, some of it we know was systemic, right? It was supply chain crises. It was now banking crises. Some things that were surely out of the control of many of our founders. And yet even before that, it was still the majority of people who had not planned for it. It's rare the occasion that I get, "hey, I really want to be thoughtful about what my financing options could be open to me because I think I'm planning this growth, I'm not sure. And what can we figure out?" It's an extremely rare circumstance and yet that's still the way I like to guide my discussions that even if they're not asking about it, I like to make them understand what could be possible. And yet, there is a middle ground where people do come to me with a very specific need. "I want to buy a piece of property" right? "I want to buy it equipment to put in my co-packer because that'll help me with my efficiencies and include my gross margins." "I'm hiring people, I want to get financing to support the working capital, or other requirements". So I think there has been–as a result of the pandemic and the supply chain crisis–more founders are more engaged with their finances and understanding happily, at least more of the day to day. And I think with that baseline, there's a lot more ability for them to grasp quickly, and understand what financing could mean and how it will support their growth.

Brad Ebenhoeh:

100%. I think, I think, too, too big things that I see a lot of reasons why people are more proactive. Number one is, if you've done this before, if you sold a company, if you've been involved with a startup or a different business forever, a lot of those folks literally come to the table, right at the start of their next venture, "hey, I want to get a good set of books in order a good team. I know this is important let's go from the start, 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's going on, you know, changing the way we live, changing the way people consumers buy products. You know, number one, number two, the supply chain issue as a result of that, like, you know, getting products in understanding cash outlays, things like that. And number three, just most recently, the the banking crisis with SBV. And things, I just the whole point of those three situations are like now more than ever, if you're not like aware that something could happen tomorrow, that can impact everything that then you may need to have your tax returns done, your financials done in order to get a loan tomorrow, like PPP, when all that came out from the COVID situation, then I don't know what else to tell you. Society changes so fast these days, who knows what's gonna happen next week. So you know, at the end of the day, basically get your shit in order now, and then that'll help you long term as we go forward. So that's just kind of a I think the big the big, you know, I think theme from both of us is just be proactive. And then we'll get proactive. And

Keith Kohler:

And yet, we recognize it's one of the hardest times ever to launch grow, and succeed in CPG. Because there is so much stuff that's extraneous, and macro, and out of our immediate control. And yet, that reinforces why we must be always prepared, show up the best we can make this a priority and our businesses, engage actively with us trust our leadership, right? And let us help guide you the best way we know how so that you have the best chance of having a successful outcome.

Brad Ebenhoeh:

Yes, good. Well, let's get into some specifics Keith. So I think, like action items from you know, specific or tangible action items for kind of the small business owner right to help prepare for as well as then let's go to action items right now. And then then we'll get into kind of specifics of requirements maybe that, you know, that people will need when they're go to underwriting like this is going to be asked to make sure you have the number one, just kind of basic, tangible three to five action items. So let's start with that.

Keith Kohler:

Sure. So, again, we'll get to the documents afterwards, right? And talk about the FDA. Exactly. So first talking about really, how do you get prepared, right? How do you really start this types of process? And I think, even beyond being committed to whoever you're working with, right, I'll tell I'll start with your finance team. I think that's the most important thing to be considering is when you're working with Accountfully, when you're working perhaps me with me on financing, when you might be working internally with people? Do you have everything you need to be set up for success? Right, are you and not just do you have the team capabilities and the skill sets? But are you really committed? Are you committed to managing your finances actively? And really, what I mean by that is what I call getting into a finance rhythm. And I wonder, Brad, right, probably all your clients have a monthly financing call with you or have the option for them that don't do it.

Brad Ebenhoeh:

Yeah, there's some that don't do it. For multitude of reasons, I think that we kind of we basically kind of push or require people to do it, I think it's value add as much as possible. There are some people that are kind of lower budget, more bookkeeping clients, but the ones that are kind of at this phase of CPG growth, I think that that financial report review call really helps them understand their business, their margins, KPIs, looking backwards last month, last quarter, last quarter versus the same quarter last year, that type of stuff, I think really helps them understand it and at the end of the day, it kind of subconsciously starts putting that in their head and brain which helps out you know, when you deal with investors or possible investors and things like that

Keith Kohler:

100% And I think one of the things we get to do as service providers and advisors is step up in our strategic support right, the way we see things beyond the numbers, how we can help the founders make good decisions and how we can support them in financing processes. So I really think of our role as an extension of the core financing team is now more important than ever. And the importance is engaging with us, right communicating with us telling us your needs and keeping us top of mind. And while Dare I say on speed dial.

Brad Ebenhoeh:

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

Keith Kohler:

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 your growth being truly aligned. A very classic example is all often see someone a founder saying, "Hey, I'm still about all about growth." And yet, what did they tell their tax preparer? Well, I don't want to pay any taxes. Right? And the you get this quandary of how can you support growth, if you're not going to even report what you're really making or even maximize your opportunities by what proper showing a lot of profitability can do for you. So I still find that there's often misalignments by even founders going to war with themselves about what they might want to achieve versus the way they historically have done things, particularly if for the first time they're experiencing growth, or they see good opportunities. And I also see misalignment even internally on finance teams, right? Sometimes I think, Brad, you know, you might choose to account for someone on a more conservative basis, sometimes it's more aggressive. And we get to dance and make choices there. And I wonder how many times the founders are really saying,"hey, I need to be more engaged with some be thoughtful about what what I'm really trying to achieve." And the last thing I'll say on alignment is family alignment is a big thing. The pandemic was rough on so many families. And if you're a founder out there that has a spouse, a partner, and important significant other and or a family. What you're thinking about financing, and your preparation, and your mindset could be different, a lot more different now than it was pre-pandemic.

Brad Ebenhoeh:

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

Keith Kohler:

Yeah, mindset really quickly on that. Mindset is a big issue and its own. And the key thing there is we live along a continuum of scarcity and abundance. And sometimes there are days when we feel incredibly scarce things outside of our control, we can't get our product, our co-man's not replying to us. I'm not getting paid by my customers that can toss you into a really bad mindset, generally called scarcity. And yet, if you can see a longer term, so yeah, manage your day to day actively, I really want you to be focused on cash and all those key important KPIs driving your business. And yet if there is a way for you to continue to have a long term vision, and long term can be six months, it can be 12 months, whatever that bite size piece is that's right for you, I think you have your best chance of stepping into an abundant mindset. And if you've done the work, if you're supported by Brad and his team, and then someone like me or others helping you, you're more likely to be there. So with your mindset, finance team alignment, and then your physical energy, realizing any financing process takes time, you need to show up in your best, and you need to be available to respond. Nothing kills a deal process like time-creep, and not responding or communicating on a timely basis. And when you're working with Brad and his team, I know you're gonna get the data quickly. The question is, how do you really massage it and use it to keep pushing you along in any type of either equity or debt financing process? So those are the key things there.

Brad Ebenhoeh:

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

Keith Kohler:

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

Brad Ebenhoeh:

So then I think the last one, I would say from outside of us getting actually into the documents and financials and requirements, I think for me is this is like anybody for the you know, networking relationships, right? Like, Oh, absolutely. Please always be shaking hands always be connecting with people you don't know who will refer you to the clearly the next business, the next vendor, the next person that could be your investor or whatever. So just clearly as a, you know, as an entrepreneur, business owner, understanding that, you know, networking doesn't need just to be with current sales and customers. It's also financing networking, right, like bank, local banks, small banks, getting involved with those, you know, some brands we've dealt with in the past, basically, were able to get SBA banking loans kind of much earlier in the process than they ever would have, from what I typically see because they create a relationship with a small medium sized bank and kept bugging them and kept dealing stuff. And then over time, they saw some improvement and underwriting approved them, which is great for them. So, relationships, so yeah,

Keith Kohler:

and I'll just add one sentence to that what you highlight is, oftentimes, I think a lot of us as founders and sometimes service providers in settings, one sentence we can use to end a conversation is and Brad, hey, if this is not something you can do, where are some other places I could go. That question can change the direction of your business fundamentally, I've gotten become aware of more financing sources, because I'm more actively asking that, particularly in the FinTech space, which is ever-evolving. It's expanding, contracting and everything. So please, yeah, do ask that question. If this is not for you, where else could I go? And nine times out of 10, you're gonna get a good recommendation?

Brad Ebenhoeh:

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

Keith Kohler:

Yeah, perfect. So let's, the way I like to do it with customers is I do it in two phases. I start with a really core set that can be applicable for anything, or nearly anything. And then I go one layer deeper, because a key thing is, most people don't like to prepare documents, and they don't like to fill out paperwork. So I try to make it as painless as possible to do the least amount of work to go to the most amount of financing sources available. And then when I identify what most makes sense, then I'll go one layer deeper. And so what does the core set look like for most of us? So right now we're recording this in April 2023. It's a super interesting time of year to be doing this recording. So I wonder, Brad, when you think of your clients, how many of them have filed their 22 tax return? Like what percentage, their corporate?

Brad Ebenhoeh:

probably a third.

Keith Kohler:

Okay, probably a third. Let's just talk about that one for a second. So almost all financing sources, well, all the term loans, all the SBA loans, sometimes in other working capitals, they might ask for tax returns for information purposes. We all get to make choices. I was on it, I was that guy on extensions for several years, it's kind of what I learned. And it's what I knew, now, I'm more faithful about filing at the first deadline. Here's my recommendation: if you had a better year and 22, than you did in 21, it's always a great idea to file as soon as possible. It's always a great now, you might not like it, because you might have to pay more taxes, and you want to do that. And yet, if it was a better year than last year, it's going to open up your financing options. More broadly, and particularly, if you're profitable, it's always good to file taxes at the, at the regular deadline. If you're profitable for the first year, in 2022, and a lot of you probably were, you might have had a banging 2019, if you've been around for a minute, and then 20 and 21, you were in the red. And for all the reasons we might know. But if 22 Was your true recovery year, and it's profitable. If you haven't filed your taxes, I really encourage you to do it, because more opens up for you, particularly in the SB and other loan areas. So the first document is the tax return. So lenders, banks and SBA lenders are going to look at three years, whatever the three most available are. So if you filed 22, it's 20 to 2120. If not, it's 21 2019. And then in lieu of tax returns, they're going to ask for year end 22 financials,

Brad Ebenhoeh:

Gotcha. I was gonna ask.

Keith Kohler:

If you haven't filed your tax return, and you don't have 22, sewed up and buttoned up, which I can imagine only a couple of people, if any, then that would be problematic for you to move ahead. So tax returns, that's the first thing that corporate just to quickly mention, personal tax returns, those do have a play in lending, not so much in the working capital space, in fact, hardly ever. And yet, if you if you filed your corporate on on the march 15, go ahead and do personal April 15, on the assumption that you can afford to pay if you have to pay something additional, personal less, less important in overall the corporate are really the key ones. So that's where it is on tax returns. In some rare cases, Brad, if you have some larger clients that are $10 million plus or so, banks or others will look at prepared financial statements being more important than tax returns. So if you are in that category, or you're coming up to be there: $10 million plus something to keep in mind and worth spending the extra money because the lenders will want to see that level of detail. Yeah, so that's everything in the tax return bucket. Again, here we are in April. So now we're far enough in 2023 that everyone asks for interim financial statements. And usually that operates in the 90 to 120 day window, sometimes a more compressed timeframe. So we're now we've now passed over 90 days into 2023. So again, bank loan lenders, again, these these are the highest amount of document requirements, right SBA and commercial lenders. So they're going to ask for year to date financial statements. So particularly in this time of year now more than ever been engaged with Brad and his team and having that monthly call, being aware of how was January How was February really, really super critical. One little pro tip if it's a weak quarter for you versus the rest of the year, something to before you send in those documents, educate your finance source about why it is and how it is. And one way to overcome that and to make it less of an issue for you is to compare it in the similar period last year. So if you have January, February, March 23, and it's higher revenue and higher income, or a lower loss than January, February, March 22, even if it's not enough to afford something, it's still something you'd want as part of a package because it will be asked for if it looks relatively weak, compared to what a full year has historically looked like for you.

Brad Ebenhoeh:

Yeah, and I just think on top of that, compare comparing, right, so as your this has come to the education of your financial reports of your tax returns of when you're profitable, not but always, when you'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. Right. That's a story to tell it is. And then hey, I have this plus I have POS and things coming in. Plus we're doing this the upcoming quarter. So when you you know, create the relationship, you have those conversations guys here that we went above this, our queue is going to be like this a few three. So that that gets the attention of people, right. And then that's the big thing. So understanding that story. This is storytelling as well, this is just as much of storytelling and nuance and art, and it is pure science and numbers.

Keith Kohler:

Brad I can't agree with you more. And that's often a missed opportunity. A lot of people will let an outside funder plug into their QBO, which is required mainly for FinTechs. Right? And yet, our big opportunity is to control them not, dare I say control that have an outsized influence on the narrative. Particularly if there's something you know that someone could say, what's that, like if you had a rotten Q1, just because you did a huge marketing initiative that fell flat. And you're never ever going to repeat that again. It's like, what was I thinking I hired some influencer, and it just didn't work out. Well, that's a one time expense. And that should be portrayed as a one time expense and say, "Hey, I'm never doing that again." Another example is, you hired the most amazing VP of sales, and he or she did not work out. And you're never going to do that, again, you're going to handle it on your own. That's another thing that could be added back and needs to be discussed. So really, please, I invite all of you never just submit your numbers, take some time and write a thoughtful narrative that says, here's, like, kinda read the key to the treasure map, right? This is the guide saying, here's the way you could look at these numbers to determine my strengths are not right for this type of financing. And yet, we know underwriters are human, they're going to make mistakes, Business Development offers can make mistakes in looking at file. So to the degree you're presenting your best face forward, It looks just like a college application essay, and really highlighting the most important things and mitigating what could be construed as either weak, or not serving your interest on getting what you need. So that's really a critical thing. And that right up can make the difference between a yes and no or not now,

Brad Ebenhoeh:

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

Keith Kohler:

In some cases, your personal credit score. And the way you can do that is you don't have to pay for it. You can go on credit karma, credit sesame, places like that. We know that they're not perfect, but they're pretty indicative. When you do a self pull of your credit score, if there's stuff that needs to be cleaned up, or stuff that requires an explanation. So I wouldn't look not just at this, well, if it's a score above 700, looking just at 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 lot of credit cards to finance my business. Or, Hey, I took my eye off the ball at the holiday time. I have a 30 day late in December, that toss me down, get ahead of that explanation too. Right. And usually, that person who who explains it first versus them asking you, it always is a better look. So the self pull of the credit report and understanding if there's an issue to be addressed and having a proper explanation about it is a great way to get prepared to because no one likes surprises. Now the key thing is everyone's going to do background check. And Brad this came up now even more because of the fraud that was committed in the PPP and EIDA loans. Yeah, particularly in the SBA world, but all around I see more and more providers doing background checks. So I think you can go to different sites like was it like reputation.com or something like that? Yeah, if you have anything in your past, anything that could cause an issue either because of a crime or some type of you know whether felony - people who've had felony convictions can still get financing. And usually it's about getting out ahead of it. Everything counts, even things like speeding tickets, DUIs can be an issue. As long as you get out in front of it talk about,"hey, this did happen. And yet, that's not who I am today." That's really a thoughtful way to control that. And oftentimes people overlook that. And it surprises can come up in underwriting because background checks aren't pulled till way down in the process. And no one wants to do all that work, and not have a successful result. So a couple of other last things, depending upon the type of financing, you're going for a lot of working capital you might get with your receivables and inventory. So really looking for your aging, A/R aging, typical schedule and the A/R detail. Some people ask for details, some people just ask for the aging report. And then really an inventory detail as well. Help, those are reports probably people very well inventory, they very rarely review it right, I'm sure you get very few requests on that, I think more people could pay more attention to it for proper management. So that's going to be for a lot of your working capital and fintech ones that are looking at that. And then sometimes for other types of specialty financing, it could be purchase orders, etc. And a final key area is if you're asking for refinancings, or asking for refinancing of debt, that's often a use case of term loans, or or SBA loans, having those original notes.

Brad Ebenhoeh:

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

Keith Kohler:

Absolutely. Thank you. So when you think of banks, most banks and institutions are backward looking, they're looking at historical documents, what you've done to date. Most FinTech and working capital providers are forward looking, because they're looking what can you do in the future? So it's often the case that forecasts are done, and then never looked at again, right? Do you I was wondering Brad? Do you when you update forecasts, you do it on the request of the client? Or is that an annual process for you?

Brad Ebenhoeh:

It's it, we have basically have a custom scope of work for every situation, right? Some people just want us to do it once, not update it, update it when they want it to just to save 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 compared to where it was, you know, make sure to reconcile to the chart of accounts so that we can look at target and budgets, target to budget or budget to actuals Well, each month. So I think, at a minimum, if you really want to get ahead of it, I think you know, getting one in place, and then updating it quarterly and against months is probably the minimum to where you're at. But again, I think getting in place, having a team that understands your chart of accounts or books, having your forecast slash budgets slash model tied to the chart of accounts, so you can easily compare budget to actuals. Those practices are going to help you tremendously the business owner going forward whereas some folks come in and give you a model of charging 10 grand for five year model hoping to raise money doesn't align with anything super complex 28 tabs of Excel, nobody knows how to do it, this person's gone. Formulas galore comes to us. We're like this is way too complex to simplify. I think a big part of this is trying to keep it as simple as possible.

Keith Kohler:

I totally advocate for that. In fact, I think there's really two forecasts, right, there's the internal detailed model, which helps you for your operating in your management decision making. And there's an external summary, which is really all you need to get that ball rolling, they'll ask for more if they need it. Outside of the equity world and the debt financing, rarely, they care more than just a thoughtfully produced summary, p&l, and a summary balance sheet. Usually, it's not crazy detail that's needed. So again, you might want to have an internal and external, I totally get what you're saying about quarterly updates at a minimum, specifically for all of you out there who are on a high growth trajectory. And I'll add just one thing or as major conditions change, right, if you have a pivot if you've launched an amazing new product, if you've just gotten into a trade account with a ton of doors, which is gonna double really important to support getting that new forecast in place

Brad Ebenhoeh:

if you hired a very expensive internal hire things like that any kind of material dollar changes I agree with Keith like that materially impacts your your your budget, update it so good. Yeah. All right. So is there anything else here because I wanted to touch on some kind of just general kind of accounting financial statement kind of, you know, mistakes,

Keith Kohler:

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

Brad Ebenhoeh:

Yep, exactly. And what's great about like what you're saying about these Luca requirements, literally, if you work with somebody like Accountfully 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 tax return and those types of things. But everything else, you know, we can pull some, you know, all these reports for a client within 15 minutes. And that's what's great when you have or are proactive, and have things in place and set yourself upmentally for that.

Keith Kohler:

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

Brad Ebenhoeh:

Yep, yep, yep. Yep. All right. So from a kind of financial statement perspective, pure, like if you sent your financials, your p&l over to Keith, or any kind of, you know, underwriter to look at kind of several things to be kind of aware of number one is, I'll just say kind of incomplete financials. What does that mean? That basically means that not all the data is contained in there. But what are examples of that? Number one is, you don't have all your bank accounts on your balance sheet, you don't have all your credit cards on your balance sheet, you don't have all the transactions up to date through the most recent month and reconciled. You may have skipped six months, all basic things that a professional bookkeeper or accounting firm should should do for you. Right? So number one is just having complete financials reconciled to the most recent quarter or month or whatever they need. And make sure that that all the assets all the liabilities, the completeness accuracy, is there for your your your business. Number two is cash versus accrual. Oh God, what does this mean? cash basis accounting is essentially when ever a money comes in or money comes out, you basically put it on your p&l or your balance sheet, right? It's only doing transactions or when things move in and move out or a credit card charge happens. There's things like that accrual base really factors in kind of two big things right accounts receivable and accounts payable. You invoice KeHe for 100 grand, you put 100 grand on your receivables, right, your revenue goes up by 100 grand, your A/R goes up by 100 grand, that wouldn't be on your p&l or balance sheet during When is cash based until you actually get paid, right? Same thing on the payables, you get a bill for accounting for legal for 3PL, or whatever that needs to be factored into your to to your financials, what people are going to want to see is accrual basis. Why? Several reasons. One is a complete view of everything that you've incurred and earned to date, right? It shows what's going on on a revenue basis. What do you have to collect? Like you said, A/R financing? Right? What bills have you incurred? What is your liability on those bills? What's your credit card balance, all that type of stuff that kind of comes into play? Number two, and almost more importantly, is you're able to kind of compare month over month in terms of, you know, what is your fixed overhead each month? What is your margins each month? That type of stuff, right? Like a big part of big time when people come to Accountfully or talked about is when they're like my bookkeeper doesn't know how to count for inventory COGS, I pay 20 grand or 50 grand for inventory, that outflow goes right to the the p&l in COGS. And then my next outflows four months later, so you don't have any consistent look way of looking at your margins month over month, right your costs will be factored into what was sold that month. So a big part of this is moving into accrual basis financials for your business, from a financial reporting standpoint, FYI, that needs to be done, you can still have a tax return on cash basis, if that's what your tax CPA requires, or allows you to do just an FYI doesn't do the same thing. But for internal management reporting purposes, you need to go to accrual basis. So if you're on cash, if you're looking at raising money the next 12 months, you got to move to accrual at some point, like in the near term.

Keith Kohler:

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 for a company that show profitability? And then on the tax return, it shows a loss?

Brad Ebenhoeh:

It's not as so it's really interesting when you're audited for inventory based businesses, most of them we match up and try to get accrual accrual accrual fund internal accrual tax. Really accrual on financial versus cash internally is more prevalent. I think, from a tax planning standpoint when you're like a service provider or an agency, tech startup, things like that. Because you can like just one quick thing and basically if you're when you buy inventory, even if you pay cash for it before 12/31 you still have to account for inventory at-hand, you can't just like write it off on your tax return basically so like

Keith Kohler:

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

Brad Ebenhoeh:

everybody would buy inventory at 12/31 there you know, the IRS ever have losses for tax purposes. So like, I think that the gain of being casualties accrual and taxation versus internal like isn't as big on that aspect, but there is that exists and that but that's You know, we have a tax even house. And that's where like I'd say, go talk to our tax team, I don't even know like there's there's so many nuances that come into play in it. But in terms of what he's saying is when you're doing that, trying to figure it out, and understanding, you may have specific reasons why doing cash basis works better for you to show profitability last year and your tax return. And then you tell the story from the accrual basis, internal financial statements, your profit and loss, by the way, or your forecast should be on accrual that then reconciles from your p&l to basically your cash balance is really what people would be looking for with that. So. And then I think a couple other things are number one is inventories. As Keith said, like inventory detail, buy that like you should, number one, inventory is your biggest resource of spend, right as an inventory based business, you should understand what raw materials you have with finished goods, etc. It doesn't always need to be completely reflected in the financials in the balance sheet. You could have one online for inventory, but they say you have 250k in inventory here. How's that broken out? And if you spit out an inventory report, whether from an inventory system, whether from Excel, here's what I have in this product is practice practices with this is raw materials, this is this, boom, that's a huge win.

Keith Kohler:

Add something on that, because finished goods inventory is what's financial in or can you be used as a basis of collateral. That being said, when you have specialty inventory lenders, the other categories, sometimes raw materials, sometimes goods and transit can be financed against, but in the other settings, SBA term loan lending abls, etc. It's almost always only the finished goods. So having a good understanding of you know, just knowing the ranges, right, because the timing effect can be huge, right? If you have, it's a funny thing, SBA and term loan lending measures one moment in time on that balance sheet, which of course was what a balance sheet does. So if you know, your inventory is going to be massive, and that can be leveraged for collateral value for something else. There's something to be said about the timing effect.

Brad Ebenhoeh:

Absolutely. Absolutely. And then a couple other quick things of kind of specifics. If you have big dollar amounts for inventory prepaids let's say that you prepaid 80 grand for inventory for whatever reason. Having that properly accounted for as a payable plus a plus an asset ie prepaid inventory. Sometimes you don't probably account for it's on your p&l. And when it like dude that's coming in, that's an asset, you just show that accordingly. Those types of things go into play specifically there. Another example is from just a pure kind of functionality standpoint, right? Let's say that you you spend it have a ton of like a quarter where you're spending a ton of promos out samples out to various people everything. And what you're doing is you're not properly accounting for them or kind of counting that information, those numbers that could materially impact your margins, because samples should promo should go to advertising bucket not into COGS, right. So there's specific nuances like that, that once you get the fundamentals in a complete set of financials and accrual based financials that then we dip and dive into as part of our onboarding, getting things in place to help facilitate, but I think I have to just the the core of it is bleeding, financials, accrual-based. From there, we can get into details of everything and all that stuff is going to help facilitate literally what we're talking about here with Keith.

Keith Kohler:

can I ask you a super quick question expanding on that? Absolutely. I had a customer who has who's a distributor. And he had the opportunity because of short supply of one particular large vendor to buy eight truckloads of this product in December and he took it because the supply had been so erratic throughout 2022 that he decided to do it. So normally when you do that, right if you're buying a truckloads, but you know that you're not going to sell it. It's a it's a bargain, or it's a departure from normal course of business where you're buying one a week, right? How you best account for that? When you buy, is it? You I think he put it all in COGS at once.

Brad Ebenhoeh:

Yeah, the whole goal is you're matching the expenses when they're actually incurred. So a lot of times anything with COGS or any variable expense that is tied to sales is really in that month, where those products shipped out, was it services related to sales incur, right is that on the balance sheet on the balance sheet is like a prepay or like a prepaid expense then and then amortize it each month if you don't have like a really good inventory tracking system in place, going you know, currently and you need to get a good set of month over month financials done from last year. And easy way to do that is to understand your average cost for All your skews that you're selling right included in lineup, you know, raw material comment, etc. And then going back and looking at your sales month over month and then they say, Okay, it's for the entire year I sold this much, and then make a mirror with with your sales, right? So you kind of get some more consistent margin. So similar to what I'm saying when you're saying here, I had to see this prepay, and then that's going to last over six months, well then take that divided by six or whatever compared to the volume is so it just kind of gets more smooth to Financials. The one of the things that people will notice is like me seeing financials as accountant, I look at a financial statement. I look at 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 gross profit here what's going on? So that I can tell within five minutes of looking at financials? This isn't right, this isn't complete. There has to be a reasoning behind this right. So the whole goal is to have very smooth month over month p&l balance sheet over the last 12 to 18 months looking backwards. And then that kind of sorta exudes confidence in in just the underwriter original like, look, this looks consistent. There's nothing crazy for me to like, you know, blow my eyes out or start asking questions.

Keith Kohler:

Yeah, the reason I quickly asked that is because he chose to put the full cash amount in COGS and December 22, to lower his tax liability, and it nearly crashed our deal, because his profitability came in lower. So I had to negotiate with an underwriter and a business development officer for a couple of hours on a Saturday, about how we keep the deal as structured, because when you blow something like that, so bad. Other than having going to restate it, we had to fight to get it added back and then show that he actually sold the product in 2023. Because otherwise, we would have had to make what's called a projections based deal, versus one based on historical profitability, and you have to re underwrite everything. So that's a case of an extreme example of how you can mess things up with improper accounting.

Brad Ebenhoeh:

Yeah, good. Good, good, good. Oh, that's great example and great information. So I think from here, I'm hopeful that kind of, you know, from our chat last time of talking the types in the understanding and even getting into some of the current economic climate of kind of some specific action steps attack to take currently, you know, even on the intangible design, mindset, team, et cetera, getting ready for that think of, you know, you're getting married soon, and I'm gonna buy a house in less than 24 months, it's the same process is getting your credit scores in place, understanding your cash getting things built up? What do I need to do? What do I need to think about as part of it very similar process? If you ever want to buy a house just tomorrow, because you like this house looks great. And then you go when you're not prepared? It's the same exact process where you just get your act, you're like, wait, what's going on? What do I need, I didn't know that. And it can be just a mess, and very frustrating. And to be frank, very, like belittling experience. So be proactive in it. And then outside of that the specific, you know, reporting or the requests, the tax returns, the the credit reports, the personal information, the financials in place. And lastly, just some specific kind of accounting and kind of financial reporting nuances and just understanding of it, but so I think that that is a really good and comprehensive couple podcasts here, Keith. It's really appreciate time. Any other last words?

Keith Kohler:

Yeah, again, I would just say, I'll say it again, the proactive person really has the best chance of getting the best result, the fastest result, and, and the most variety of financing available to them. So we hope that, you know, I certainly hope that this serves the Accountfully community in some way. And because we're all here to support you and help you grow the company of your dreams and get you the right financing at the right time and Brad supporting you on all that it takes to get you there as well.

Brad Ebenhoeh:

Awesome, awesome. All right. Keith Kohler, thanks again. You're financing man, I guess what financingman.com. Great new brand and he's here to help and serve the community. He's got a big passion for this community and I think he's just getting started. So put him in your Rolodex, Keith. Thanks again. Really appreciate it. Have a good one, Episode 30 of The Month End podcast. Hope you all enjoy it.

The key takeaway from the episode
Common client conversations Keith has
Top reasons clients are more proactive
How to prepare yourself
How Keith and Brad can help you see beyond the numbers and be your strategic coach
Step Two in prep: alignment
Step three in prep: mindset
Energy and availability and networking and relationships
The key question you should be asking to seek additional resources and information
Documents required to start the process
Tax returns and interim financials: how they need to be prepared for financing success
How to tell the story of your success through numbers so that it appeals to lenders
Personal credit score considerations
The role of forecasts, budgets, and models
Why investing in a solid accounting team will allow your investment to pay off
The common financial statement FAQs answered
The commonality of a business showing profitability on a financial statement, but not on their taxes
The intricacies of being audited as an inventory based business - what to understand
Finished goods inventory specifics
Inventory pre-paids specifics
A case involving a huge upfront purchase and how it affected financing options
How to properly account for COGS
Summarizing the conversation and action items