Introduction to Finance and Operations

Speaker 1 0:00

This is the Empowering Healthy Business Podcast , and I'm your host , cal Wilder . Each episode , we'll dive into topics important to folks who want to run businesses that are both nicely profitable , sustainable and scalable , and who want to achieve balance in their lives and realize their potential inside and outside of work . This show is sponsored by SmartBooks . Provider of bookkeeping and accounting for businesses let's get started . Provider of bookkeeping and accounting for businesses let's get started . So I'm really excited to talk to today's guest . He's got a background across product and project management and operations . He's currently working as a fractional operations leader with founders and business owners to help them operationalize their business objectives , get extracted from the day-to-day management of the business if they're the founder or the CEO and really position the businesses to scale . And he's owned his own business in the past , which gives him the added perspective of having done that . So I'm really excited . Leonid Tunic , welcome to the show .

Speaker 2 1:02

Thank you , Cal . It's a pleasure . I'm really excited to talk to you .

Speaker 1 1:05

Yeah , I'm looking forward to digging into this topic . And so , when we spoke earlier , you used an analogy that finance and operations are like a married couple they love each other but they're not always on the same page , right , and it takes work to maximize the quality of the relationship , right ? And so today we're going to talk about , you know , how finance and operations can work together more effectively to drive business success . So , leonid , how did you kind of come to that realization ?

Speaker 2 1:41

So I think this married couple doesn't always know they're married . Uh , sometimes there are situations where you know the the functions themselves are connected and you know the the people in charge of these functions uh have sort of a dysfunctional relationship . Uh , and I've seen plenty of businesses like that , where , where finance is doing their own thing , operations is doing their own thing , um , and they're , you know , sometimes looking at the same data , sometimes a different data , but there's really not a lot of collaboration and there's so much opportunity there for making things work better for the business . So I've just , in running my own business , I've come to realize that finance and operations they're just different sides of the same coin . So , whether you like it or not , they are connected . It's just a matter of having the team realize it and putting things to their advantage Right .

Speaker 1 2:43

Here's an example I see more often than I'd like to . I've seen it in my own businesses , and definitely with a number of clients where there's kind of an annual budget that assumes certain hires are going to be made over the course of the year , and so there may be , you know , a some kind of a customer service hire slotted in for June , and so the operations team is planning on making that hire in June . And then June rolls around . They're like , okay , we're ready to make that hire , let's get the offer letter out . And then finance is like whoa , we can't afford that . And there's a complete disconnect there . Well , operations is like , well , it's in the budget , and finance is like , well , it's more complicated than that , because the budget was predicated upon achieving a certain amount of sales and revenue and profit margin and customer count . And we're not achieving the budget , so we just can't afford to make that higher . And then operations gets all mad about it and they fight about it . So what other situations have you seen there ?

Speaker 2 3:47

Yeah . So for me , I think what you're describing is spot on . I think these conflicts get much more intense when the business is growing and it's really sometimes hard to predict the pace of growth . It's hard to predict the timing , like when do you need to invest the cash into building capacity ? Building capacity doesn't come with automatic increase in demand , and so you might not be filling all of that capacity . So you're paying for capacity but you're not bringing in the revenue to support it . So it kind of related to what you were just describing bringing in the revenue to support it . So it kind of related to what you were just describing . And so growth represents a big challenge for making these two functions work together .

Speaker 2 4:41

In my own experience , the business I was running was growing at about 20 , 25% a year , which is great because we had the demand , but it was also running a lot on prepaid sales , which were paying for increasing the capacity , and that led me to a cash management problem , and so I realized pretty quickly that this was not sustainable . So situations like that really require the team to make a plan

The Married Couple Analogy

Speaker 2 5:13

that has contingencies , that has , like you know , what if this doesn't happen ? What if that doesn't happen ? Where does that leave our P&L and balance sheet and cash flow statement , our P&L and balance sheet and cash flow statement , and what's going to be left at the end of the day in the bank account ? So I think that neither finance nor operations can solve that problem on their own , even though sometimes they think they do .

Speaker 1 5:48

Right ? Yeah , I can imagine in a seasonal business it can be even more challenging , because finance accounting is thinking in terms they're probably thinking in terms of accrual basis revenue recognition , and so all those sales that got booked in the beginning of the year that aren't going to be delivered until the end of the year , or maybe the first half of the year is really strong and then the second half of the year is really strong and then the second half of the year is weak , and so you've got to build up a big profit surplus in the first half of the year to pay the bills in the second half of the year , and so finance is thinking about all that and operations might be thinking about something else , right ? So what are some tactics that you've seen work successfully to try to bridge that gap and keep finance and operations on the same page ?

Speaker 2 6:30

Yeah . So actually , before we get into tactics , I think we can refine a little bit what the problem is , and there's a couple of different categories of the problem . One is different timeframes . Right , Operations works on days and weeks kind of a timeframe . Most often Finance works on months and quarters and years , and so those have to be lined up and tied together . They're all connected . You know , the daily numbers add up to the weekly and the monthly and they have to work right . Finance and operations often have different priorities . Right , For finance , controlling the costs is very important , and for operations often it is , but often revenue generation is a higher priority and sometimes it's driven by the founder or CEO , who might be sales oriented . Right . So that's another huge friction point often in the business . And then the third category of disconnect that I found is language . Sometimes numbers that finance calls an expense might be viewed as an investment by operations , an investment at the future capacity , and so they sometimes could talk past each other about the same things .

Speaker 1 7:59

Yeah , I think that's an interesting point you made with number three , the language expense versus an investment . Because you can really , I think , get wrapped around the axle because there's accounting rules that the accounting department wants to follow . There's financial planning that maybe the CFO or the CEO or the COO wants to follow because it kind of makes sense in their head . They're creating a financial plan based on cash flow and delivering service and they'll just let the bean counters figure out how to report the bean counts , but they're working on a different model in their head .

Speaker 1 8:33

And then sometimes you make an investment . It's easy if you make an investment in property or equipment or something like that , it's clearly this tangible thing that you bought . That goes on the balance sheet as a fixed asset . Everybody's kind of on the same page there . But if the investment is something that doesn't really go on the balance sheet like you're making an investment in opening a new office in a new city or launching a new service line or something like that , that's kind of an investment , right , you're making an investment now that you expect to pay off later , but it doesn't go on the balance sheet , it goes on the P&L as an expense .

Speaker 1 9:05

And so how do you track that and how do you kind of create a pro forma P&L that segregates out the P&L for the new investment , separate from the P&L for the core business ? So the core business could be doing great , but then you're reporting losses due to the startup investment and you combine those two together . It looks like the business is struggling , but in reality it's not . It's just a question of are we going to achieve a return on investment , on the new investment , whereas the core business is doing great right . So I think that's , I think , your point about getting on the same page about expenses versus investment , and how do you measure it and report it . I think it's really important .

Speaker 2 9:41

Yeah , yeah , absolutely Clearly . You've , you've , you've seen the same things . There's also another one that that's . That has to do with how granular people want their data to be . Sometimes , on the operations side , there's a tendency to want to see a great level of detail , and on the finance side , there's just like why do we need to see that ? I just need the top number , and so a lot of times it's one of those situations where both sides are right and need to come to some sort of a middle position that makes sense for everybody , because a greater level of detail always requires more effort and more work . More time costs more .

Speaker 1 10:30

It takes longer to get your reports things like that , I think it requires more communication too , because operations knows what's going on on a day-to-day basis , where finance doesn't really know necessarily . They're just kind of reporting what they see for bills and revenue and bank transactions and credit card charges and whatnot , but they don't necessarily understand the granular details

Growth Challenges and Cash Management

Speaker 1 10:55

to the same extent that operations does . And so having a system in place so that operations can communicate the granular detail so that finance and accounting can get it posted that way , is also another challenge .

Speaker 2 11:07

Yeah exactly so . In terms of solutions , what I found is that finance and operations need to co-design the business model . Basically , they need to work together on making a business model that helps them understand the business better and talk about things in the same language and also agree on things like you know cycles , you know terminology and you know how they want to see the data . So building those models together , I think , really makes the team work better Cool . And then , on an ongoing basis , it's really reviewing the monthly reports . In some business I've worked at , operations teams want to see data on a weekly basis because they you know , they want to know that they're on track for for their goals . But that data rolls up to to monthly goals and quarterly goals , and so reviewing those together really helps each function understand the other function better .

Speaker 1 12:18

Right , right . Another thing I've seen is operations likes , the idea of sometimes they want to see , you know , a weekly P&L and they're like , oh well , we shouldn't be able to pull that out , right , what kind of what we sell this week ? What were our expenses this week ? Seems like it shouldn't be that hard . And then finance and accounting is like , whoa , that's . That's actually really hard , because a lot of these expenses , you know , are geared toward , you know , a month or something like that , and there's like 4.3 weeks in a month and we don't know what the expenses are until we get bills sometime . So it's actually pretty hard to do a weekly P&L 4.33 to be exact , yes , so , and there's a big difference between , you know , bi-weekly payroll , getting paid every two weeks , and semi-monthly payroll , twice a month , and so you know . So there's all these challenges to work together . So I think , as far as you know , helping bridge the gap there , what I've seen is kind of lagging indicators that are the result or the output of the work that gets done every day , every week , every month , and it kind of rolls up to months and quarters and years . But it's really the operations team that do most of the day-to-day , week-to-week work , and so we kind of define metrics and scorecards and targets , making sure that the day-to-day , week-to-week operations metrics align and roll up and will produce the financial metrics at the end of the day . And so that's really critical because sometimes there can be conflicts between what operations are trying to do on a day-to-day basis and what finance wants to see at the end of the month . So kind of building those metrics that align are important .

Speaker 1 14:08

So you know , for example , finance may care a lot about , you know , gross profit margin and customer profitability and operations may care a lot about customer retention and customer lifespan and keeping customers happy and NPI scores .

Speaker 1 14:27

And so how do you marry those two ? Because operations may do a great job at retaining clients and keeping them happy by underpricing , by giving credits , by doing whatever they need to do to keep the client happy . And then finance is like what are we doing here ? The revenue and the cost for these customers are way out of whack and we're losing money or we're not hitting our profit targets . And so kind of getting the two communicating , like you said , on a regular basis so they can kind of make joint decisions about whether it makes sense to risk losing a customer in exchange for trying to make the engagement more profitable , or whether maybe it's a strategic customer that makes sense to retain at a lower margin because there's value there in some way to help build the business right . And so you know , when there's those natural conflicts or potential for conflict , you know , working together to kind of make some of those decisions is really helpful .

Speaker 2 15:21

Yeah , yeah , for sure . That's also related , I think , to so there are some metrics that are really difficult to get , and these are metrics that require data from multiple sources . Right , and you know , you can pull your finance data out of QuickBooks . Your e-commerce or enrollment system might have your operational data and revenue data . That's more detailed , but you really need to connect your systems somehow in order to get really useful numbers . So , for example , for a service business like what is your gross margin per labor hour ? Right , how much margin are you generating for each hour of your unit of service ? In order to get something like that , you need to pull both the revenue side and the cost side , including your labor costs , including your space costs , like all of those data sources , and I think small businesses struggle to connect those systems together to produce the data . So

Different Timeframes and Priorities

Speaker 2 16:30

data is a whole separate topic that probably deserves another podcast episode .

Speaker 1 16:36

Yes , yeah , I mean . I think these days it's probably easier than ever to connect systems , but at a minimum , even if you are not at their point of investing in connecting systems , you know understanding , you know , you know what data that you need to produce the most important metrics for the business . And even if you have to manually plop data into a spreadsheet and do a little , you know a half hour of manual work every week to get those important metrics . It could be a good investment of 30 minutes of somebody's time every week to do .

Speaker 2 17:07

Yeah , for sure .

Speaker 1 17:12

Are there any other tactics that you've seen help bridge this gap between finance and operations ?

Speaker 2 17:22

Um , so we talked about um jointly building the models . Uh , we talked about looking at the reports on a regular basis , um , by bringing the teams together . Uh , I think , um , I mean , you know my background , part of my background is in project management , so there's , I have a soft spot for the planning process . But the value of planning is just as much in thinking through the process as much as coming up with the actual plan . Actual plans will change , right , you'll make a plan and then something will happen , or there's always an estimate that was off that changes your entire plan . So it's not the actual plan , it's actually the process of building a plan that is more valuable for the team , and then in the process of doing that , you engage the right stakeholders and it's a way of communication across the whole team . So I find that the process of plan making is really useful .

Speaker 1 18:38

I may have to steal that quote . The planning process is more valuable than the actual plan . Right , you can nail the process . Then you're flexible and you can conduct the process again in three months If you know you're not exceeding the original plan . You know you're exceeding it . You're coming up short . Something's different . If you've got a good process , then're coming up short .

Speaker 2 19:02

Something's different If you've got a good process , then the plan can be updated much more easily , right , yeah , exactly . And then you already have a template , you already have the layout , and so it's a matter of updating . You know , if you build it right , you build in variables that can be adjusted , variables and assumptions that are global , that can be adjusted , and Excel is a great tool for building those plans and models . You don't really need anything specialized .

Speaker 1 19:26

Cool . So tell me about your current consulting business . What's your focus ? What kind of clients do you work with ? What do you help them do ?

Speaker 2 19:38

Yeah , so I came to this a little bit of history , uh , I came to this after running my own business and finding that , you know , I started a business , I grew it , uh , I sold it .

Speaker 2 19:51

But what I found is that throughout that time , I was really so deep in the work of the everyday work of the business that I didn't have the bandwidth to lift myself up and start thinking about strategy or what was possible outside of my current business .

Speaker 2 20:10

And I also realized that I'm not really a visionary type of founder .

Speaker 2 20:16

I enjoy the independence of running a business and making my own decisions , but I'm not someone who can create a vision from scratch , and so what I do currently is I work with visionary founders for whom this is a huge strength , but who are looking for a way to extract themselves from the day-to-day operations and where businesses are getting more complex , and I work with them to help them create capacity in the things that they have superpowers at , and that means I'm like a trusted partner to them .

Speaker 2 20:55

That means I'm like a trusted partner to them running a lot of the operations across people , technology , process supporting , strategy , supporting execution , partnerships , relationships All the things that are hugely time consuming and require being aligned with the strategy of the business , but don't require the founder or the CEO to be involved day to day , and so yeah , and it's a fractional practice Usually , I find that smaller businesses like under 10 million in revenue or something like that 10 , 15 million in revenue need someone like me for a few days a month , and that's usually enough if they have a strong team that I can work with to execute , and it seems to be working really well .

Speaker 1 21:53

And so you've kind of consolidated all your learnings over the years to bring the bear with your current clients . But if you could think back over your , um , your career experience to date , um , what are some of the key things that you learned ? Or you wish you knew 10 , 20 years ago that you had to learn the hard way ?

Speaker 2 22:13

Um , I think the biggest one is that I don't have to do everything myself , and that's a really hard lesson to learn , because there's always like founders have usually have a keen eye for things that should be done better or could be done better High standards but they don't always have to be done by the founder . There's there , you know , they can be delegated to the team , and it's better to build up your team to the level that you want to run the business at rather than to get yourself down into the weeds in order to solve the problems yourself .

Speaker 1 22:56

I've heard two schools of thought on delegation . One school of thought is as a founder , you care the most . You may have the most skill . You should just be happy if you can hire and delegate to somebody who does it 80% as well as you could , because that's a win , it gets you out of doing it and you can elevate to focus on more valuable things . But then you're kind of accepting , I guess , lower performance . And then the second school of thought I've heard is you're probably doing things that you're not that good at , that other people are probably better than you at , and maybe you're not even aware that you're not that good at it , and so by delegating it to somebody who has more skill in that area , you're actually getting a better result than trying to do it yourself .

Speaker 2 23:45

Right , yeah , absolutely , and you know every founder has superpowers , but you can't have superpowers in every functional area . But you can't have superpowers in every functional area and you know that would be exceedingly rare . And you know it's much better to bring in people who have superpowers in the areas where you have blind spots and they can do a much better job . The

Joint Business Models and Metrics

Speaker 2 24:12

challenge is to be able to align with them and trust them that they're executing along your priorities and your vision .

Speaker 1 24:20

Have you used or had experience with different tools that assess ? You know personality traits , or you know strengths and weaknesses , or you know things that could help guide that decision about what the founder is really good at and should focus on what their superpowers are and what their weaknesses are and what their energy drains are .

Speaker 2 24:45

I've used . I've tried using a bunch of tools . Honestly , I haven't found them very useful . They always seem to oversimplify in some way and I think most people like we're all adults here , we all know ourselves or should know ourselves at this point , and I'm aware of my blind spots enough to say you know what . This is really not my superpower .

Speaker 1 25:11

Let me bring somebody else in , and I think the ideal situation is to be working with somebody who's self-aware enough to say that Right , yeah , I feel like we get to a certain point in our careers , we become a little more self-aware and we get a little more , I guess , vulnerable in terms of just being open and honest about what we're good at and what we're not good at . Right , if you wanted me to go attend a networking event and talk to a whole bunch of people and find some business that way , uh that's , I'm not very good at that and I'll just tell you that . Whereas 20 years ago I might have just gone and done it and not done very well at it and hated it , but I would have done it whereas these days I'm I'm very selective when I put myself in that situation .

Speaker 2 25:58

Yeah , exactly , I know that sales is a blind spot for me . I can work on it , I can improve my skills . I'm never going to be as good at it as somebody who has a superpower and as some of the best salespeople that I've worked with , and so I would like in a heartbeat I would put them into a sales role rather than torture myself into trying to do a good job there . Yeah , yeah .

Speaker 1 26:27

So was there a particular catalyst that got you to start your own business and now start your own consulting firm ? Start your own business and now start your own consulting firm , Kind of what ? Just something along the milestones along the way in your career that made you think , ah , I want to , I'm going to run my own firm , run my own business , my own practice .

Speaker 2 26:47

I feel like it was just time . I you know my career has had so many different experiences and in a variety of functional areas , including sales and so but I've worked with finance and human capital , hr and technology and you name it right Sales and marketing operations and so I really like to be at the center of it all and even if I'm not executing and like in a in sales , I want to be working with the best salespeople that the organization has . Um , and I think that's my strength is being in the in a central role like this . I'm a generalist , um at heart and and my brain works like a generalist , and so I I like having all these connections and I actually draw benefits to the business by connecting different functional areas . So it was kind of a natural progression of a career path and I also love entrepreneurship and I love working with founders , with visionary founders . I'm always impressed , always just amazed at how that whole process works . So it's just I enjoy the work .

Speaker 1 28:08

You keep mentioning visionary founders . I'm wondering if you're kind of specifically drawing that from the EOS , the entrepreneurial operating system , or more generally , because I know there are these frameworks out there . Like EOS got a lot of experience with , there's scaling up , there's various frameworks out there that purport to try to get everybody on the same page and coordinate finance with operations . I'm wondering if you kind of utilize particular frameworks or you've kind of developed your own over the years .

Speaker 2 28:40

I like the EOS system . I haven't seen a pure implementation of it firsthand . I know they probably exist somewhere , but as a reference model I do like the EOS system , especially when it comes to the relationship between the visionary founder and what they call the operator , which could be COO or chief of staff or director of operations . I think it's a really natural model and it's a model that fits everyone . The sort of the pro , the common profile of people who start their own business . Right , they tend to be visionary , saying I can do this , there's something better than what we have today and I and I want and I'm going to build it . Um , that that takes a very special uh person right cool um .

Speaker 1 29:38

What do you like to do outside of work when you're not working ? Leonid .

Speaker 2 29:42

I'm a skier . I don't spend enough time skiing , but that is my happy place and I go skiing with my kids , sometimes basically as much as I can .

Speaker 1 29:57

Well , we're in New England , so you have the opportunity , if you have the time , to go up north and ski .

Speaker 2 30:04

We do . There's a little too much ice here , so you know , New England could be part of the experience , but I also love to ski

Fractional Leadership for Visionary Founders

Speaker 2 30:13

out west . Yeah , it's a big difference you know I'm in New England , obviously too , and I've skied . You know , 97% of my skiing is in .

Speaker 1 30:37

You know I'm in New England obviously too , and I've skied . You know , 97% of my skiing is in uh . You know New Hampshire or Maine , um , but I did . I've gone out West twice and it's such a different experience . Um , I probably didn't even have the right kind of skis to ski . The powder out West versus the ice in uh's very different , it's amazing . Yeah , I'm dying to get back out on the slopes . I haven't done much skiing the last several years since my kids got to a certain age and I was busy coaching soccer and basketball and things like that . When you're coaching basketball from October through March , it doesn't give you a lot of time to ski . Yeah , yeah , cool . Before we wrap up , here , leonid .

Speaker 2 31:04

Is there any other topics that you want to cover today ? You asked me about frameworks , and I wanted to mention . There is one framework that I apply pretty regularly , and it's sort of one that I've built over time . When I face a major decision that involves both finance and operations , or really any major decision for a business , I put it through what I call a four C's process , and the four C's are capacity Do we have the capacity to deliver what we're trying to deliver and to generate the revenue that we're targeting ?

Speaker 2 31:38

Do we have the right people ? Do we have the capacity to deliver what we're trying to deliver and to generate the revenue that we're targeting ? Do we have the right people ? Do we have the right widgets , the right space , the right resources , basically ? And so capacity is the first one , the first C . The second C is cash . Do we have the cash to invest into creating that capacity or creating that , you know , generating that revenue ?

Speaker 2 32:05

Uh , customers , you know , does , um , we think we're delivering value , but do the customers , uh , agree with that , that premise , uh , and are we ? Is the pricing right ? Are we leaving money on the table or are we barely meeting expectations ? And so we're currently overpriced , so customers have to be considered as part of any major decision . And then the calendar can we hit the timing and make it work ? Do we have enough time , you know , is this a three month or six month or a full year project ? And how does that impact the bottom line and opportunity costs and all of the other factors ? So the four C's I would share as a framework for just sort of assessing major decisions across the organization . Major decisions across the organization .

Speaker 1 33:02

Cool .

Speaker 2 33:06

So I forgot to ask you what's the name of your current firm , leonid . So I operate as Hexo Partners . Hexo so partners because I really want to be a partner to founders , a trusted partner to founders

The Four C's Framework

Speaker 2 33:21

, a trusted partner . And Hexo because in all of my experience I found that there are really six core elements in a business that you have to get right in order to have a successful business . You can miss one or two and the business will be struggling , but it will still survive but be struggling . But if you hit all six , you have a successful business .

Speaker 2 33:44

And those are people . Do you have the right people in the right roles ? Do you have a competent enough team ? The second one is finance , and we talked about the finance process and how it connects to everything else Technology . Do you have the right technology ? Sales and marketing strategy and execution . And those six pillars led me directly to the shape of a hexagon and I was like oh , a hexagon , what can I do with that ? So Hexo Partners is what I operate as um . You can find me at hexopartnerscom or on linkedin um . At linkedin , slash in slash . Leonid t l-e-o-n-i-d-t . Um . But thank you for asking that and I and I'd invite anybody to reach out if they're facing a situation that I described earlier .

Speaker 1 34:44

Very logical naming process . I can tell you're very process-oriented , as I would expect , no less . You went through a planning process to come up with your name for the firm , so that's a reflection of how you operate , I guess . Yeah , and the domain was available . That always helps , right . That's kind of the key these days what domain is available . Well , thank you so much , lienan , for your time and sharing your experience here , your four Cs , the six pillars of Hexo , partners and your experience over the years . So I really appreciate your time and sharing everything with the audience . Yeah , thanks for inviting me Cal .

Speaker 2 35:21

It was a pleasure . Thank you , Take care .

Speaker 1 35:24

Bye , thank you , take care . Another episode in the books . Thank you so much for tuning in For show notes and more . Visit empoweringhealthybusinesscom . If you would like to have a one-on-one discussion with me or possibly engage SmartBooks to help with your business . You can reach me at cal C-A-L at empoweringhealthybusinesscom or message me on LinkedIn , where I am easy to find . Until next time , this is Empowering Healthy Business , the podcast for business owners . Signing off .