The Business Millennials Podcast

2.4 Biggest Challenge Small Businesses Face

• Ashley Dreager • Season 2 • Episode 4

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In this insightful episode, Ashley and Safa delve into the critical reasons behind business failures, focusing on the often-overlooked aspect of cash flow management. They discuss the misconceptions surrounding marketing as the primary cause of business failure and explore how proper financial management, pricing strategies, and operational decisions impact a company's sustainability and growth.

Key Takeaways:

  • Cash flow, not marketing, is often the root cause of business failures
  • Proper financial management is crucial for business sustainability
  • Pricing strategies should consider costs, market demand, and operational expenses
  • Mismanagement of funds can lead to poor customer experiences and business closure
  • Regular financial analysis and strategic planning are essential for business growth

Timestamps:
0:58 - Discussion on common beliefs about why businesses fail
2:56 - Explanation of how cash flow impacts business sustainability
4:05 - Insights on investment rounds and financial management in startups
7:44 - Real-life example of a business facing financial challenges due to poor cash flow management
15:39 - Importance of pricing structure and models in business sustainability
19:07 - Introduction to the CFO Yourself course and profitable pricing calculator
21:46 - Emphasizing the importance of financial management in business operations

Referenced Links:
CFO Yourself course

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Intro:

Welcome to the business millennials podcast. This show brings you strategic insights through raw and unfiltered real world advice to accelerate your business growth for longterm success. I'm Safa Harris, and I'm Ashley Drager. We're the founders of scale and thrive co a full service marketing and business development firm, helping visionary companies scale sustainably. Expect us to have the uncomfortable conversations that no one else is having. We'll break down what it really takes to grow and scale your business beyond six Seven or even eight figures, as well as inspiring interviews with diverse leaders across marketing, product development, sales, and more. Be a fly on the wall. As we conduct strategy sessions with business owners, experiencing issues such as plateaued income, burnout and generally dropping the ball. Giving you the tools and resources to break through your own roadblocks, but also personal development methods to grow you as a balanced conscious leader amidst business growth. Let's jump into this week's episode. you

Ashley Dreager:

I saw a fun post, uh, in a business networking group recently. The question or the prompt was, do you think the, the reason why most businesses fail? Like, what do you, what is the number one reason why most businesses fail? And I perused the comments just out of curiosity of what everybody thinks. And the vast majority of people. Said, it was mainly focused around marketing action. So like lack of visibility, lack of customers, it may have been lack of sales, but it was, a lot of it was around, visibility, not. not having the people there to be buying from you. And I was like, well, you guys are, you're, you're kind of getting close. You're like, you're dancing around the real reason. Uh, so I don't, I wanna, I'll leave it open to you how you would answer that question before I give my humble opinion on this.

Safa Harris:

would say if I'm picking like one specific metric, would say cash flow. They run out of money, or like the money's not coming in at the right time to pay their bills, and then like, just falls apart.

Ashley Dreager:

Yeah.

Safa Harris:

reason that happens is that there's mismanagement of the finances or the operations that led to the cashflow. And then when they don't have cashflow, then they're like, Oh, we obviously need to do marketing to get more sales, that's really not.

Ashley Dreager:

Yeah. Yeah. I was going to say cashflow.

Safa Harris:

think, I think that's why they're all putting those marketing things in there, but the real root cause cash flow.

Ashley Dreager:

Yeah. So if you think about it, if you had unlimited, if money were no object, you could sustain the business. No problem.

Safa Harris:

hmm.

Ashley Dreager:

You wouldn't have to consider closing the business and going a different direction, maybe getting a, maybe getting a different job or going back to an employer or, you know, to that nature to survive this wildly expensive time that we live in. Um, but yeah, cause if you had even just a million dollars in the bank to pay for your team, for the product, for ads, for marketing. To be able to get the cashflow coming in to circulate around and pay yourself a livable wage so that you weren't, you had the time and the space and you could be the one managing the business, right? I mean, money is what solves all the problems.

Safa Harris:

something to think about to put this in perspective when you are thinking about people getting investment money for their businesses. Like startups, even smaller businesses, it's never one round of investment.

Ashley Dreager:

Mm,

Safa Harris:

It is

Ashley Dreager:

yeah.

Safa Harris:

get one lumps up in the beginning and from there you're able to like put a ton of money into the business, launch it, set it off, and then, then you're just working off of increasing marketing and making more sales and it's going. There's always usually multiple rounds. It's like, oh, they got round A, they have more seed money, whatever, whatever to keep it. Sustaining and turning until you're able to get more sales where you're able to do that and there's like management involved um and doing all of that, so it's never just Hey, yeah, we got some money. We were able to do

Ashley Dreager:

Mm hmm. Mm

Safa Harris:

your investment into your business for growth is sales. So you're making sales to get that seed money, right, to run and grow business. But if you're not, you, your seed money is limited because it's coming from sales.

Ashley Dreager:

Mm hmm. Mm hmm. Mm

Safa Harris:

do the least amount of effort for the most amount of impact, It's going to like dwindle away and then you won't have it available to keep doing what you need to do to do more Sales to bring in money and then stack and grow From there. So I think that's That's really important to think about because we also recently did a strategy for someone that was looking for investment rounds and we planned out that she would have to do rounds five or six times before she got to a point that she was doing enough to be profitable. To keep the businesses self sustaining because

Ashley Dreager:

hmm. Yeah,

Safa Harris:

to be able to keep it going um and Another thing that you mentioned is like you need to be able to manage it enough so that you're giving yourself a livable wage Oftentimes investors Will not give you the money if you Are not planning for your own salary in the budget you present to them because they want to see that you are paying yourself However much that is livable that is market rate for whatever role you're doing So they know you have the capacity to put the time and effort into what they're investing in Oh

Ashley Dreager:

mean, because we've seen on a number of different accounts, both personally and in business, where the money was mismanaged, and it really led to the detriment of the business. And, or, the detriment of your client experience of the customer experience. I mean, I remember you had a fence guy that, I mean, this is,

Safa Harris:

blocked that trauma out. But yes.

Ashley Dreager:

um, I mean, we're making assumptions cause we're not in, you know, from the personal side. We're not,

Safa Harris:

me

Ashley Dreager:

he told you. Okay. Well, on mine, it was my assumption from my personal experience from how our remodel went. Oh, did he really? Oh,

Safa Harris:

of like oh you're he ended up actually getting investment funds to like Fix out fix his business. Mm hmm.

Ashley Dreager:

wow.

Safa Harris:

and then the investor ended up being in the business and managing it for him I have no idea what's going on now, but like my fence got put up eventually once he got the investor But, um, so the difference between, okay, yeah, you have funds coming in from an investor that you need to make sure you're managing properly. So you can eventually get to a point of profitability and pay them back, or they're going to be like mad,

Ashley Dreager:

Yeah.

Safa Harris:

but if you're bootstrapping it, you don't have like daddy Warbucks, keep putting money into your bank account for you to keep going, you have to be extra careful to be like, okay. I have this much money that I want put in personally or I made these initial sales that I Fulfilled and now I'm ready to grow this business or whatever it is. I have x amount of money Okay. So what am I doing with this money one to keep costs low? To keep things going still provide quality Still keep sales coming in still delivering well, so I can eventually make a profit Make more sales, do all of those things to keep this sustainable and going. Instead of being like, I have 100, 000 in my bank. I am going to pay myself 75, 000 of that. I'm going to spend 20, 000 on like mentorship and 5, 000 to run the business.

Ashley Dreager:

Yeah.

Safa Harris:

you're not gonna, you're gonna run out of that hundred thousand dollars and you're not gonna have any more to continue to run the business. And then you're gonna be in a place where you can't make any more sales because you can't, one, do the marketing you need to do. You can't do the sales you need to do. You can't deliver the things you need to do to make more sales. Because there is no Daddy Warbucks.

Ashley Dreager:

Mm hmm.

Safa Harris:

if, even if there was Daddy Warbucks and he did the same thing, he's never giving you any more money.

Ashley Dreager:

Yeah. Yeah.

Safa Harris:

guy. what happened is he, like everybody, started his business in 2020. He did like million dollars in sales. Because I think he, he did like outdoor renovation stuff. So if you're doing, we're in Florida. So obviously everybody's like, I want a patio. I want a pool. I want a screened in fence. I want all these things. he made a ton of money on there. And then after that, he kept his prices the same. He was doing really well. Everybody had. Cash at that point so they were spending and paying and he was like cool Like I'm taking all this money home I'm making all of this stuff whatever and he's quoting things for the price that he's quoting them and then the price of materials went up and 2223

Ashley Dreager:

Mm hmm.

Safa Harris:

he ended up negative on his projects because of what he was charging versus what it was costing for him to get things. And he didn't go look. He's like, okay, if I want to, I know that this is the price point I can make sales on. Well, what can I do that maintains the quality, but then reduce my cost to do the delivery? Or it's like, okay, well, I need to raise the prices so I can maintain these things. But he wasn't looking at any of that. And then so what he did is he's negative on all of these things. He has projects that he's had people put project put payments down on. So that was, it was like 5 or 6 of us in this neighborhood. He got that. There were people that paid him for like and patios and things like that. He took their initial deposits, which we're supposed to pay for materials. Okay.

Ashley Dreager:

Right.

Safa Harris:

And so, so essentially it was really a Ponzi scheme. So he would take, he would make another sale to get cash to pay for the next project's and then deliver it. But then before he could do the project that he took the cash from, To deliver the last project, he had to make another sale.

Ashley Dreager:

Yeah.

Safa Harris:

Instead of just being like, Oh, my costs are rising, let me increase my prices. Or let me source from somewhere else. Or let me do whatever. So he's robbing Peter to pay Paul and he can never catch up because he didn't manage his cash flow.

Ashley Dreager:

Well, and he never addressed the root cause of the issue to begin with.

Safa Harris:

Yep,

Ashley Dreager:

Which is that he's not charging enough to

Safa Harris:

exactly.

Ashley Dreager:

for materials.

Safa Harris:

Yeah,

Ashley Dreager:

just a bigger hole that keeps getting dug

Safa Harris:

exactly. And the only way he was able to get out was that he went and sourced funding and the investor came in, paid for all the materials of the back projects, got them done, and then His, this investor was actually actively involved in the management of the business because I got contacted by the investor

Ashley Dreager:

to finish the project.

Safa Harris:

to

Ashley Dreager:

like coordinate it.

Safa Harris:

to, to finish the project, come in and be like, Hey, how'd everything go? I'm doing all of these things, initiatives, because obviously he's going to want to be like, Oh, maybe they'll come back. I'm never going back, but.

Ashley Dreager:

He's trying.

Safa Harris:

going to try. He's going to try. And so he was actively involved in the management of the business at that point,

Ashley Dreager:

Oh wow.

Safa Harris:

being like a investor.

Ashley Dreager:

Yeah. I don't mind. I think it just closed all together.

Safa Harris:

Oh yeah. Oh yeah.

Ashley Dreager:

But yeah, it's uh, funny I was thinking about this. Um. Just the other day, because I ran out of almond milk, um, because I couldn't see that far back in my cabinet because it was supposed to be a Lazy Susan. It was not supposed to be a hidden cabinet. That was the whole purpose of our remodel. And so I was just like thinking about it. I was like, this is so annoying. I wasn't even supposed to have this type of cabinet right here. I would have seen all of the food that far. So just fresh in my mind about, so it could,

Safa Harris:

through a similar situation with your

Ashley Dreager:

Yeah. So it's pricing structure and cashflow management does or can affect the front end of your business and the customer experience.

Safa Harris:

Oh, a hundred percent.

Ashley Dreager:

So

Safa Harris:

terrible customer experience and both of those, the only reason the fence guy, Survived is because he got out direct cash your guy completely out of business and that's just So everything going back to that original post everything that they were seeing Was yeah, that's a problem that can probably band aid it right now But that's not the root cause of what is causing you needing those things which is causing the business to

Ashley Dreager:

yeah,

Safa Harris:

It's coming back to needing Root cause, tracking metrics, having a pulse, creating a strategy and a plan to know what's going on and what your options are that are available to you to fix those things. And maybe for some people it might be marketing, it might be visibility, it might be those things that need to happen. But other times it might be something else that's going to lead to all these other things and challenges

Ashley Dreager:

yeah. But I like that you brought up the, uh, like the pricing structure and the pricing model because that can, that's a huge factor on whether or not the business can be sustainable longterm.

Safa Harris:

Oh

Ashley Dreager:

Like, there's, I mean, so many of it, so many of the projects that we have worked on, like it's come back to pricing and margins and profits.

Safa Harris:

Yeah, so this is one of my biggest issues with the charger worth. Especially when you're growing and scaling your business. So there's a few different types of pricing models. There's like value based, cost based, um, and then like tiered and things like that. It all depends on what your business is and the market that you're marketing on and all of those kinds of things. But I always, regardless of what the business is, is usually recommend a hybrid model where you are figuring out what the cost for you to deliver product or service and usually if it's just you that cost is going to be lower because you're just doing all the labor there's no but when you're growing and scaling there's going to be cost to deliver the product or service um especially if it's a product you have to buy product to sell product

Ashley Dreager:

Mm hmm.

Safa Harris:

um so you figure out what the cost is and then you mark up your margins from there and figuring out what the markup And what your margins are going to be depends on, one, your operating costs and also what the market will accept.

Ashley Dreager:

Mm hmm.

Safa Harris:

So I

Ashley Dreager:

Mm

Safa Harris:

can sit here and say, Ashley, I think we're worth 300 an hour all day long. And if the market's like, yeah, cool, maybe, but we're not paying that. It doesn't matter what I'm worth.

Ashley Dreager:

hmm. Yep.

Safa Harris:

Because it's not about me, it's about what the results are getting and how much the marketing market is willing to pay.

Ashley Dreager:

Mm hmm. Mm

Safa Harris:

pay, and what your operating costs are to then price your product profitably or your service profitably and go from there. You can't just be like, and it works when it's just you delivering the service. Or and it works when it's just you delivering the product because you're just like I feel like 1500 is fine And that's fine when the cost to deliver it is 25 bucks and your operating costs are 300 Like cool. Yeah, that works until you're like, well, I want to do more marketing I want to bring someone in to help with the delivery. I want to scale up my Thing I want to do all of that and then You also get to a point where you're like, Oh, well, I can increase to 1800. I can increase to 2, 500 and then your sales halt

Ashley Dreager:

hmm.

Safa Harris:

because you went beyond the capacity of the market, but you're like, but that's what I'm worth. nothing to do with you,

Ashley Dreager:

Yeah. Oh, totally.

Safa Harris:

is going to, if you're not taking into account all of those factors when you're pricing it, you're going to have, then have a sales problem,

Ashley Dreager:

Mm hmm. Yeah.

Safa Harris:

or if you are not pricing it high enough. You might have all the sales, but if you're losing money on it, you're gonna have a cash flow problem.

Ashley Dreager:

You can't afford your operational expenses.

Safa Harris:

like my fence guy.

Ashley Dreager:

Yep.

Safa Harris:

So, root cause, at that point, pricing.

Ashley Dreager:

Yeah.

Safa Harris:

Yeah, So that's kind of where the profitable pricing calculator that we have. It's in our CFO yourself. It's, um, a course that has a bunch of one baseline information for you to understand your financial metrics, to know what money's coming in, what's going out, on how the money is working in your business. And being able to have the sense to be able to read your metrics and know what's happening and the profitable pricing calculator in there helps you price things out from putting your direct cost in and then putting in a margin that doesn't Relates to the margin you've create the budget, the operating budget you've created within CFO yourself to profit the price your offer your product to make sure one you're making up enough off of something want to pay all your operating costs. also just not go negative on the product itself. And then also we've had people go through the course that said, yeah, I went through that and I actually reduced my pricing, but then make more sales. So I am able to actually get out of the red in my business and create more profit. So sometimes the answer to your problems might not be more sales. It might not be your pricing. It might be. reducing your pricing because you have the knowledge to know, Oh, like I have space to do this. And that's what the market is asking for.

Ashley Dreager:

So this is also something that you should have in place for your business as you're going through the quarterly planning that we talked about a few episodes back, because it will give you. the information and the data to know whether you can take on certain projects, whether you can do certain builds, if that's something that you can financially afford, if that's something that you can do within the business too. So it's all tied together.

Safa Harris:

Oh, yeah, for sure, because one, you're going to want those financial metrics to be able to know if something's wrong and you need to fix it. Two, you have those projects be like, okay, well, does this have to be me? Do I have the resources to hire out or whatever it may be to, you know, Actually execute it. in CFO yourself, there is an investment affordability calculator. You can plug in all your information and then how much something costs, and it will tell you if you can actually afford it or not.

Ashley Dreager:

There you go. See, we've got all the bases covered. To help you manage the funds. Cause it is such an, uh, it's such a vital part of a business. I mean, the money is the blood of a business. You have to have it.

Safa Harris:

not, it's not the sexy part. That's why you don't

Ashley Dreager:

Yeah.

Safa Harris:

all of that out there on social media where you're like, oh, I learned a ton from consuming on social media on how to market my business, but nobody's going out there and being like, oh, let me tell you about margins because you guys are going to scroll away from that so fast. It's like eyes glaze

Ashley Dreager:

Yeah. Oh, math. But I mean, the spreadsheets will do a lot of it for you. You just have to, you just have to pull the data and plug it in. So, so we'll link that in the show notes if you want to check it out and, start managing your cashflow better.

Outro:

And that wraps up another episode of the business millennials podcast. We hope you found this conversation, thought provoking, inspirational, and helps you make a larger impact with your business. Growth is not just about profits or revenue. It's a journey of personal development, contribution, and bettering ourselves in society. Our challenge for you take at least one key lesson from our time together today that you can apply not just to your business. But your relationships, creative expression, wellbeing, and personal evolution to, we appreciate you tuning in. If you enjoyed this show, we invite you to pay it forward, share it with an entrepreneur, creative student, or community leader who needs an infusion of insight or inspiration right now. And make sure to subscribe on Apple podcasts, Spotify, or wherever you listen. So you never miss a single episode. And if you like what you heard, leave us a five star review. See you next week.