Searching for Patterns: How to Use Financial Statements to Your Businesses’ Advantage


Visit this show online at

Follow us on social!

Twitter, LinkedIn and Facebook: @GrowthForce

How do you make decisions based on financial statements? For that matter, how do you communicate the content of financial statements so that others can make sound decisions? Join us for a discussion of the art and science of financials.

In this episode, I interview Chris Williams, President and CEO at Rocaceia LLC, about how financial statements inform his business strategy.

How to Use Financial Statements to your businesses’ advantage

What we talked about:

- The business model he uses and why

- Building financial statements that matter

- Using visuals to communicate financial data

- Monthly averages, quarterly averages, and the importance of even $250

For more episodes like this one, find us on Apple Podcast, Spotify or our website.

Listening on a desktop & can’t see the links? Just search for Path to Profit in your favorite podcast player.

I love for patterns. It's you know. Ifit happens once it's not a big deal that happens, face is kind of yeah.Maybe you need to pay attention to them and if it happens three times it's atram. You are listening to paste profit PODCAST, looking at business growthfrom every angle, posse if you're looking to hear stories of success andfailure, lessons learn from leaders that a Groan and scale their businessesyou've come t th right place, let's get into the show hello and welcome to path to profits.Thanks for listening, I'm Stephen King and to day I'll, be joined by ChrisWilliams. President and C L of quality lease services, now known as Rocas,will discuss the difficulty of getting a financial team for a small businessand what needs to be tracked for growth and reliable forecasting. Chris Welcometo the shelf. Thank you very much. L appreciate your making the time to behere you're one of my favorite clients, and why I wanted to invite you to ourpodcast, because you really use the numbers every dayand it's almost like a hobby right. It's due. If IT'S A it's a passion, andso this podcast is about getting the people that I know who are the best atfinancial management, financial manager, strategies and sharing them with peoplewho want to be really good at it. So let's first talk about what is qualitylease service. What do you do? What's the business man, the business model isthat we supply housing and what I call ancillary services to rig sites. Sothat's a gig sat for people are in sided for people outside of Texas Yeah.A Rick side is where they drill throw oil so typically rike. I will have ahuge drilling rig and you sometimes see him age go down the highway and thensurrounding or within a probably a hundred yard, proximity, ther panywhere from six to eight or nine houses in in these houses. There aredifferent functions. What could be a safety house? One could be a crew house,whole people, sleep, one could be a control house, so we supply thosehouses and every time that rig moves, we move with them and we move ourhouses. So we have a trucking flea that moves. The houses and we also take careof water and sewer, which you call grey water, so we will bring fresh water ina not potable, but it's used for showering ones. You know the rest ofthat and then we supply the system that collects the effort line will take thatto a disposal side. So you make a little city around the rig side, O y at yeah, sir. I don't know how many people are on a rig, sided and give intime, but probably a hundred or someone. Oh Wow, yeah, that's pretty big, so wemet you were brought in by some outside equity partners. Yes, looking to helpwith a turnaround, yes, and so the walk. What you talk about your background andwhat your role is and how that's worked? I was called in to look at a situationin behalf of an equity firm that was a deal that had gone south almostimmediately after acquisition, basically due to activity on part ofthe sellers. That, in my opinion, was totally inappropriate on ethical and along list of things, but be that as it made, they had a problem and they wantto say this is a Bible business or in that which you take a look at it. Thepeople that bought the business were in Florida in Tampa, and so I flew out toTampa basically to get the lay of the land and when they acquired thebusiness. The organization in Tampa had their own management team, so thatmanagement, team bass in Tapo was running this basis that, at the timewas based in south Texas. Within about three months, the acquiring partnersdecided that they would like to be able to step back from it. Yea We kind of knew what direction this wasgoing to go, which was eventually in...

...the bankruptcy. So I was asked to comein and run the business and actually for a short, while actually all thebusiness, and so when I brought in growth horse,we had a team of probably six people doing, accounting or maybe even sevenat a very high cause, and I want to do subcontract that bring it back to Texas.I did not want to have the difficulty of hiring a controller and a financialteam that I would have to supervise worry about what, if somebody left,because a small company yeah t a career, bat yeah, so that's where growth fordswas, and if I remember Pret, I think we saved you about forty per cent on thecost. There was huge yeah, yes, an no that helped the bottom line. I'vehelped a lot. It was, I know through automation. So how do you? How do youthink about numbers right? When do you start in your view of a financialstatement and then let's work backwards from there andd? You know: How do youget to decision making? You know from those financials? I start at the end. Istart you know. The my objective is to obviously is to make money right, sothere are so many factors that go in to making money that you have to kind oftrace them back to starting a net income. I start I started there andwhen I go in because I did turn around for many years and then the first thingI would do in a term situation, I would look at their income statement and Iwould take it. I wouldn't a sign, regardless of how it was a SIDDA Akimstatement. I would say this is variable or semi variable or fixed, and then Iwould create my own income statement as a derivative of the actual incomestatement, so the numbers always match at the bottom line, but the makeupwould be different. The key is there. The variable expenses should track andflow with the revenue side, and that is the key to kind of controlling aboutthe overhead side. Obviously you can look at that and say you know: What canI eliminate from overhand and there's usually something you can do and growthorchis a good example. That's a accounting is an overhead expense right.So if you can reduce overhead from you know a hundred thousand a month toseventy five that stays with now. On the flip side, we weren't even close tothat. But anyway, you know, if it's fifteenhand to ten thousand t'ater right right yeah. So it's a big number, so youcontrol that part and then the there's a lot of pieces inside of that, youknow, like insurance, property taxes, other things that you know that's aseparate track, but those are usually one off decisions. Now the actualrunning of the business consists of the revenue side and the variable expenses.When you say very well expensive, you tell about all the above the line costand can cost a good salt. Basically, yes, I'm saying you know the theory is,if you're getting a dollar in revenue and it cost you fifty cents. Okay, then,as you track up and down, that ratio should stay the same. Fifty percentration so you're looking at gross profit as a percentage, yes and thenmeasuring all those above the lane cast right, make sure you hitting yournumber right and see in which you know which ones contribute to what so that'skind of that's the dry side of it in a sense and when you're dealing with financialstatements and income statements you're, typically getting that information.Three four weeks after the end of the length which it's a nice to have, butin terms of affecting the business, is not very useful, it's after the factrights. After the fact it's done, you can't do anything about it. So it'spossible that you made a mistake in weak one of the month that you justclosed and you're now in week, seven right and wish you change other peoplethan had. So we do didn't. Didn't do the kid! So My cassadas did you go all the way backto what generation numbers and then you start putting those together in aformat that the people that make those...

...on the ground decisions from truckdrivers to their managers to anybody I involved, so they kind of understandwhat their role is and give them visibility at something thatthey can do something about in real time or near real time. Yeah is at thatgot a weekly basis. So, yes, absolutely everything goes out weekly. They feedinformation. The thing that's changed. I've been doing this for so many years,but the thing that changes so much information is now accumulatedelectronically. Yes, so you never have to duplicate anything, it's just amatter of finding the source, putting it together and then interpolating itin a fashion that you know somebody comes up. So, Oh, I see what happened.For example, you have to do payer, we pay weekly. We know who have to getpaid what we have to submit that information to pay roll. So we know whothe people are, how many hours they worked and you know during a specificweek so that has to be put together so that that information is furnished tome electronically. Well, I know who's a troittoir. I know who's a service tack.I know WHO's, Ad Min and so forth, and I know by putting it together in aspreadsheet, how much overtime as work because just make tacul tion so at theend of a week, so right after the week is over within two days. You know themanager will be able to see it. Here's how much over time you ran. You knowhere's how much revenue here's something with revenue for hour. All ofthe things that make up. You know at the end of the day, a profit for thecompany, and you can then take action on. SO THAT'S REAL! That's reallyimportant! That's fantastic! You know, I'm passionate about intersecting offinancial management strategies with human capital management strategies,and I know you've got an HR background. I do and one of the things that Ireally admire about what you've done in your career and in this business, isyou drill those targets, O those gross profit targets from the company to theDepartment of the department down to the manager for and then you rewardthem with a bonus based on rost profit if they have the growth profit yeah? SoI want you, I preach this. You know to the to the company for a long time. Iwant them to feel like they own the business. I don't want them to feellike they're. Just I e way there right now, you're not going to get through toeverybody on that consent, but you will get through to summon. You know one ofthe things that I remember a long time ago I went to her talk by GordonBethune about connel air lines, and Continental Airlines was talking abouttheir performance targets. You know on time, arrivals baggage, channel and acouple of other things, and they would give like twenty five dollars. You know, asa bullness quote, Unqua to all their employees when they get certain targets,and I'm thinking you know here is a huge company that pays these peoplevery well, and that became a big deal for these people. So I do the samething. You know we have a profit. You know two months in a roll or you know-or I should say we're doing well I'll, give everybody to gift certificate andthat's their way of knowing hey. We did okay and if they don't get like that'sEr way, questions like what what I do wrong. What management monitors getsdone right? What you're doing is yours, letting everybody know I'm payingattention and your performance has helped us absolutely and it's therecognition, even more so than the reward is what the study show that youknow all right. My boss knows I'm doing a good job and by the way I got a fiftyl, I give you too, and he and- and I tend to think they're part of it. I Mto me since I come out of an R background group. I think one of mymost revealing things was when I was on a big plant in in Connecticut, and Iwas responsible for R and I went out and they had a kind of a peace worksystem, and I was talking to some of these people that worked on the lineand then I would ask them. You know what they did. You know outside thefactory and you know I think it. Well, I'm an older man, ynos like CityCouncil, son and I'm thinking you know...

...these guys are just people puttingplace together the people with another life and there you know they by a large,very capable smart in contributed yeah. So that's always stuck with me that wasthirty forty years ago or whatever. So, let's talk about the the visuals right.You have non financial managers right on your team and do you show themcharts and trends and graphs? I do you know a visual has an impact. You cansee something. So I gather all this information and exhale and I got a onework sheet with several taps and one of the taps is a chart. So at the charge and generated exhalethey're, pretty automatically done callie created that way and that putcopy, pitched them into an email and I'll give them anywhere from three tofive or six carts. He gets all of them in the Excelle also, but under a jar Ican say this is what's happening. This is what's happening. Look at this, sohe's he's able to see actual months compiled and then actual weeks for thecurrent lock Hm. So he can look back and said Yeah. You know I'm doing muchbetter than I was you know, period of date or whatever you know in May oflast year, I'm doing much better. This may, but he may have he may have possit.You know said something to me say you know I had to run. For example, I hadto run the truck drivers work more over time and we had more truck cars becauseI'm increasing to staff. I had a dead head, a lot em for training. prepense,that's t understand so I understand your labor cost is going to go up forthat week on the flip side in the following week, and I should see it is.We should have the reverse of fact. These drivers are knowing their owntrucks generating more revenue. Our average cost is going back Riso. Heknows that I can see it, he can see it and we'll see if we a profesor resultand it's a non financial manager pickrel makes I jes absolutely thatpart church. That's a lot and I've never heard of anybody, though puttingthem into an email and then a couple of bullet point or neath helping themunderstand what it's said. That's brilliant! As how does that translateinto you know, decision making and- and youknow, with your managers and what reports are you giving them, sir, andthen what kinds of decisions do they make from those reports? Okay, let's,let's take when we did the INTRO, we were talking about the business there'stwo parts of our business. Actually, it's a housing sign and then we also dotrucking. So we all salt water from drilling sites where that's alreadycompleted, and you know oil and saw water separate, and then we have to allthe salt water to a disposal site. So in that instance, we have x memberdrivers. Let's say we got ten and they run this little route. They go fromthis site to the disposal and dying and forth, and they put in the now is atwenty four seven business. So every every week I get a report by individualof how many you know what they, what their revenue was. So I can line upthese seven people and feed that information back to their managerssaying this guy is making us a gross of seventy five as an hour, and this guyis making us fifty oars an hour something's wrong. You need to lookinto it and, and I look for patterns it's you know. If it happens once it'snot a big deal that happens, face is kind of yeah. Maybe you need to payattention to them and if it happens three times it's a trend and that's thebat manager's role is to make sure that happens now. Typically, that manager isgoing to say the guy showed up on time. Yes, he did what you supposed to do.You know he might have had profit whatever it is, but when you presentthem with factual information as a look, you know here's a picture right. Youknow here's all these guys. All these guys are are doing seventy or seventyfive bucks an hour. This guy is doing fifty multiply his number of hourstimes at twenty, a differential, that's part of our profit. I know so yea. Theyneed to know that understand. It's not complicated right and they dounderstand it. So the decision would be to invest in training. Do I change outthe person exactly yeah how to fix that right? Yeah, I love it. You know it'sinteresting that I like that. When I...

...looked at your financial reportingpackage, you look at things on a quarterly basis. I do you know onemonth is interesting. As we talked earlier two months, if you're seeing atrend- and you get three months or something, then you know good or bad,you know you've got something that averages out those those hills andvalleys. So when you look at Your Pano you're, looking you one of the versionsof your Pan Yeah and you really slice and dice in a lot of interesting ways.You saw you know last year right for the year right, then sorry, two yearsago for the year then last year, by quarter right and then the cartquarters right. So what are you doing with that? Okay, so I take that dataand I actually average it out into a monthly sleep. So when you look acrossleft to right, everything is comparable. So when you look at sales it's averagemonth and if you look at cost average mine- and now you get a picture of youknow of how the business doing also able you to forecast a somewhat too-and that goes back to the to the general manager, and he now has a PNAthat chose him because I'm never going to blame. You know somebody forsomething that happened in one month, because it's possible that you bookedsomething one month. You didn't look it in the other, whatever it is yeah, butwhether I could chant yeah yeah. So so you know, but you get two or threemonths and to me a quarter is very representative of what the company'sDon and then taking the quarter and and getting it to an average per monthright for that quarter. That seemed to be the key indicator for you right andwhat I assume these are non financial managers right, correct H, so they nowall the financing is not my growth for yeah all the number track and all therest of this. So we do all that and you, okay and you've got an MBAN financeright. I do that. Actually I have. I don't even have my ba. I went to BAschool because I recognized that with my degree in labor relations, I waswoefully deficient, an understanding business we so I went to takeaccounting courses at night, married two kids and really enjoyed gettingeducated for the first time. So I continued on and took all my mbacourses and then I got transferred to Europe guy a s you you before. I finish.The point is that you have a financial background, yes, and so what I like,what you're doing is you're, translating that financial backgroundinto number a way that a non financial management to again and it's taking thequarterly totals divine enough to become a monthly arage and thencomparing that month, quarter by quarter for the last year right andthen for the monthly average for two years ago. Right, that's really greatand they can also measure the person because I here's where you came in youknow: here's what you've improved upon and particularly for the variableexpenses. You know you show, you know a variable expenses. Now our two biggestexpenses are fuel, a labor. You know it too big with that fuel almost goes handin hand with Labor, but Labor is also heavily dependent on overtime. So, ifsomebody's racking up that you know I break out the overtime or as they won,you know we're paying. You know this number of thousands of dollars forregular pay, plus you're, paying this number thousand dollar for overtime pay,and you realize if you hire two more people, you know your total cost all godown. You get more work down because you're paying time and a half right,yeah now in the oil business, it's tough because particularly for thetransportation, so these drivers expect to get you know fifty five sixty sixtyfive hours a week right. So I predicate that, but I show the manager because Igot a little algorithm in the weekly numbers. It says, even if we work themsay sixty hours a week, you're still two People Chore Hm, That's Interesting,and then you get them acting like owners, because you've createdincentive plan around gross profit. Talk about that a little bit well, thisis primarily for for the general manager, and so I've got the generalmanager and I've got two subordinates of his and then he got over time. Imean overhead otherother things so he's...

...he had based on the specially even to,and then I jump up to the gross profit line and for the two other managers. Itake the financial information and say this part revenue is yours, and thispart of the expenses is yours, and this is where I expect you to be, and I tryto explain to him. I said because the numbers are for one manager is likesixty three percent prose proper e s on nine and fifty one, but I say look youknow, don't think that we're making a ton of money because fuel is not inhere. You know all your overhead, your salaries, not in here to bunch otherstuff, but this is and then I showed them I say: Look if you can run at thatnumber. You would have generated this much more, basically profit yeah and bynot running it you know we actually lost this much so they're getting. Youknow bonused on that on that differential Ay, and it's not bigdollars right about two hundred and fifty bucks yeah, but it makes a bigdifference, absolutely yeah I like, because it drives the kind of behavioryou're looking for it yeah. I don't want them to pay attention yeah. I wantthem to you live the detail. I just want them to know right thatinformation's out there, a manager monitors gets done so they'remonitoring it and their monitoring o. that's what everybody's going to mindpay attention to the other thing I liked in your package. I've never seenbefore was the way you use the balance. You've got a sources in uses, columnar,which I thought was really innovative right. You know so most of the CEOSthat that we work with you know they know their income statement right, butmost people don't know how to read the ballate and and and your background andturn around you know, that's you know, brings a unique perspective. Tell meabout how you use your ballancy. Well, that's essential. You say that becauseI was one of those people like at the Handcommentar Gard, the Banashi, thepouch. It's important that you take the most basic example, which is the cat'sreceivable. You know you can have a great income saving and you've got onecustomer, that's twenty percent of your business they're not paying their billand then at some point you may have to write that off right. So, if you'reseeing this big, you know basically that's a use of cash from receivablesgoing up money, you don't have because they haven't paid their bill. It's abig deal and the same things. True accounts, PA o cows payable, goes up.Yeah, that's great I'm using the cash, but I got to pay the Piper at somepoint, so you do have to try sources and, andit's a with exhales, so many things are easy to compress so that you get apicture in version yeah and then, if you want the detail, just go backwards,and and what's Nice and in quit books you know you can exploit the reportswith the collapse and expand capabilities in it right. So it'sreally easy. You know collapsed on. What I like here is: What you've doneis you got your balance sheet by month, right and then you're? It looks likeyou're taking the last three months for and the year and to day for and you'recalculating the kind of the change in the asset group or the liability groupand then putting in a column. That's got sources of cash and a colons usesof Catholic so that you can actually see what the where the cash went rightso and that's more for just just for me. You Know Yas, I'm responsible for that.Nobody else is really yeah yeah, but cashes king right right. I you you,don't have the cash flutter, then everybody suffers right and I thoughtit was really interesting. You Know Tho the audience to see the the categoriesthat you've broken into doing nine of them. You know. Obviously cash goes upthat down as either a source use the cash receivables you mentioned.Operations is kind of the operating the lechee accounts. Like your prepaidexpenses and your leasehold improvements. You know stuff that youhad to use cash for inventory, fix to assets like furniture, pictures andequipments, and then the good will, Inter Company and depreciation. Thoseare all the assets for that you tap separately. I've never seen anybodykind of summarized the balance sheet as a cash flop. I mean. Obviously thesources and uses of cash is about the comparative ballache right, but thisway makes it really easy to quickly see...

...yeah and then on the liabilities youyou know, is these easier. You have payables and you have the debt and thenfinally, you know equity. So now it's a nice snap shot. What do you do withthat information? Well, in our situation, we don't have any death. Soit's I don't use it as much as I do in a turn around situation, because in aturnaround situation you may want, you may have some batch of assets that arebasically bad any good for you. I know I've gone through plants and and lookedat their inventory and looked at the inventory on the shop floor andrealized that the sun had gone anywhere. I didn years. You know and one of theapproaches I take when I was doing this as a consultant. I would go to theowner and I would say, would you rather have you know five million dollars in cash?Or would you rather have this business profitentur and struggle with and makehim? You know, look at that basic decision and realize you know if youhad five million dollars s and you put it in the bank at two percent. Youwouldn't have to worry about it again right here you got five million dollarsand you know now. Let's say you know you decide you're going to go leaseanother warehouse or do something bit or inventory. You know. Is that reallywhat you want to do? A lot of them say yes, and some of so we're big on theKAPI and the G and the trend lines and show the budget versus actual and rodirection, both actual month by month and trailing twelve months right. Soyou can see side by side o that you mention that, because you know for nonfinancial managers, that makes it all real thanks for taking the time to joinus on this episode of path to profits, with Chris Williams, president and C yoor Rocas, and to the rest of you we'll see you next time. Growth Force is the smart back officestint. CEOS need for better financial management in their business,delivering the level of reliability, consistency and expertise that istypically reserved for man are from advanced bookkeeping management,accounting, controller and advisory services. Growth Force providededicated teams and cloud based technology to become a scalablesolution, for we need you where you are to learn more.Is it got FORCO you've been listening to hate probe to ensure that you nevermiss an episode subscribe to the show in your favorite podcast you're,listening a a podcast we'd love for you to give a quick grating show just atthe number of stars. You thank you so much for listening until next time E T.

In-Stream Audio Search


Search across all episodes within this podcast

Episodes (26)