Episode 68: A Clear Path To Growth & Profitability with Jeff Prager – Transcript
Rennie Gabriel 00:09
Hi folks, welcome to episode 68 of the Wealth On Any Income podcast. This is where we talk about money tips, techniques, attitudes, information and provide inspiration. I'm your host, Rennie Gabriel. In past episodes, we spoke about how to build an Income and Expense Report, how to measure the level of pleasure based on where you spend your money, how to track your money in 5 - 10 seconds, and what to look for on a net worth statement to see how close you are to Complete Financial Choice®. Last week, we had as our guest Jesse Brisendine, who creates cohesive teams within large corporations, so everyone is working toward the same goals. Today, we have as our guest, Jeff Prager. I've known Jeff for a couple of years, and I'm so proud to have him as a guest. Jeff is a retired CPA, author, speaker, and entrepreneur, and has taken companies public. He's the co-founder of the CFO - which stands for Chief Financial Officer - CFO Project, that teaches financial professionals how to provide their clients with one clear path to a business that grows and becomes more profitable. He's taken companies public, and his own company was the second largest privately owned homebuilding company in Colorado. And while running that, he was also a partner at a land development company that developed over 10,000 residential lots in Denver and Phoenix. Jeff, welcome to the Wealth On Any Income Podcast.
Jeff Prager 01:48
It's my pleasure to be here, Rennie.
Rennie Gabriel 01:50
Thank you. Well, let's get right to it with some questions. Let's talk about what you're doing now, and why? You've been retired for 14 years, why are you working?
Jeff Prager 02:04
And this is the third time I've been retired - truly. I love what I do. I truly love what I do. It's... my wife is a potterer - she spends all her time doing that. I ride my bike. I have my model trains, but it doesn't give me the mental excitement that this does. And I have had as a goal since I retired to help over 10,000 businesses grow and be more profitable at the same time and realized that there was no way I could do it by myself. So ,what we did is we created a training program for Enrolled Agents, CPAs, Bookkeepers, to teach them the skills to become a CFO, as opposed to accounting skills. And accountants tell you what happened in the past.
Rennie Gabriel 03:01
Yes.
Jeff Prager 03:02
They're like in the back seat, saying, 'Here's where you were.' Whereas the CFO, is the guy taking you into the future, saying, 'If we want to go here, this is the path we take.' And what we do is we teach these financial professionals how to provide this one clear path to their clients. Now, each path is different for each client, obviously, but we teach them our methodology to do it. It's a lot of fun.
Rennie Gabriel 03:32
And it makes so much more sense because you don't drive a car looking in the rearview mirror.
Jeff Prager 03:39
Exactly, exactly.
Rennie Gabriel 03:42
So let's now - because I donate 100% of the profits from the work I do, to the charity Shelter to Soldier, tell me about the cause that's important to you and what they do.
Jeff Prager 03:54
Well, I always used to do it to KERRY but it's the . .. why am I blanking out?
Rennie Gabriel 03:56
You're talking about, I know, I know, it's the Kidney Foundation and Ally Jewish Federation.
Jeff Prager 04:06
Those are two.
Rennie Gabriel 04:07
And anything to do with asthma.
Jeff Prager 04:08
Anything to do with asthma. So I grew up with really bad asthma. And even to this day, I have to treat it, but it's under control. Those are the charities, those that are helping people breathe easier. My wife's mom died of a kidney disease. So that's one of our favorites. And Ally Jewish, I've been active in for many, many, many, many years, actually served as president of Ally Jewish Housing, which I know this sounds like an oxymoron, but it was section eight housing for poor Jews.
Rennie Gabriel 04:44
Yeah, hey, you know, poor people can be in any ethnic or religious background. So yeah, I get it.
Jeff Prager 04:52
Yeah, we all have our stereotypes, but sometimes they just don't fit. They don't match reality.
Rennie Gabriel 05:00
Exactly. And one of the things I noticed with all my guests is the charities that they support are the ones that mean something to them personally, like for me Shelter to Soldier, because of the dogs that that we love, and the soldiers who protect the way of life here in the United States, and my service during Vietnam was so easy. I mean I got to eat food at a table on the ship in the Naval Reserve. I got to take showers. And I had friends from high school who were crawling through rice paddies. So, because I had it so easy, and what my friends went through, that's why I'm supporting Shelter to Soldier with so much money.
Jeff Prager 05:43
Yeah, I've had friends go through some pretty traumatic experiences in Vietnam. Because of my asthma I couldn't serve, but that was a blessing in disguise, maybe.
Rennie Gabriel 05:57
Yeah - Well, let's talk about, well, you mentioned CPAs and bookkeepers as your target market for The CFO Project. Is there anything new that you're going to be launching?
Jeff Prager 06:10
Yeah, our goal is on January 1st, to launch a project we call, Business Owners Only. And what we're going to be doing is taking the same fundamental training we're giving to CPAs, financial professionals, and gearing it for business owners, so they can actually apply it to their own companies. The difference is that when you're a business owner, you usually get buried so far in the weeds, that you forget to look at the bigger picture. Where am I going with this? Why am I doing it? What excited me about it when I started? Because for most of us, when we start our own business, it turns into our own nightmare.
Rennie Gabriel 06:59
Those are such great questions. I know I'm cutting it short, and there's more that you want to say, and I will have you say it, but I just wanted to emphasize that those questions are so important for every business owner to ask on a continual basis. Okay, now, go ahead.
Jeff Prager 07:16
Just basically, you have to have a game plan. You can't just deal with it by day by day. Otherwise, you're always in firefighting mode, putting out today's fires. And a lot of business owners, totally - they're they're so focused on that checking account, if you will, that they don't think about how their decisions are affecting their long-term viability. And because of that... I mean, you ask them, 'How much money do you have in the bank today? Is it more than or less than you had last year?' And it's usually either the same or less. Very rarely is it more. 'Are you making the kind of money you thought you would?' - 'Oh, well, I didn't do this for the money.' Baloney, you've got to have cash for your business to survive. And that's the other thing. The CPA profession teaches you how to save money at the cost of making money. And the whole paradigm is wrong. They're focused on profit. Now, for tax purposes, they want you to make no profit. Well, how long can you stay in business for with no profit? Okay. But regardless of your profitability, you could stay in business for years without profits. Look at Amazon, look at Uber, look at all of them.
Rennie Gabriel 08:43
Yep.
Jeff Prager 08:44
But they all have one thing in common - positive cash flow. And that means taking a different look at your numbers than just focusing on either top-line growth or bottom-line growth. Let's look at your cash flow. Let's look at your growth. Let's look at your ability to withstand problems. Let's look at your ability to invest in your future. Let's look at the ability to pay yourself what you're worth. No one's really addressing those questions.
Rennie Gabriel 09:18
You're absolutely right. And they're crucial for the long-term growth and survival of the company. But now, yeah, we've painted a picture because, I mean, hey, you've been very successful. And I don't want anybody listening to think, you know, you start that way and it's the only thing that happens. But I know that you had a business failure. I think it was had to do with books on tape. Tell me about that.
Jeff Prager 09:45
Well, the first time I retired, I had taken a company public and made a pretty good sum of money. So I said, you know, I'm tired of accounting and didn't realize that I spent years perfecting it. So I went into audio books, and just read that there was a huge market and everything like that. I said, 'Oh my gosh, if I could get 1% of the market, I'm going to have a great business.' And by the way, I did get the 1%. But what was funny is I got on the Board of Directors of the Audio Publishers Association. And I got to see how they put their statistics together.
Rennie Gabriel 10:27
Mm hmm.
Jeff Prager 10:28
And realized that their $1 billion industry was really $250 million.
Rennie Gabriel 10:35
That's different. Quite a bit. 25% of what they were telling you.
Jeff Prager 10:39
Yeah, yeah. And so once I realized that. I realized that my whole business plan was built on an erroneous assumption. And the question was, do I try to get 4% of the market, or do I quit? And it just turned out that it was easier. The path of least loss at that point, was to close it down. That was probably my... I mean, I invested a lot of money in it. Had I not been elected to the Board of Directors, I'd probably still be going broke. But I did not know the nuances of the industry. I guess what I learned and what I love about accounting, is I forgot how many nuances I learned along the way of taking that company public. And that knowledge is, I mean, you don't get it from a book. You just don't.
Rennie Gabriel 11:46
No. No, you can't. And so what I'm hearing is your biggest insight from that may be to stick to what you know, and you're great in financial planning and growing businesses.
Jeff Prager 11:59
Mmm, exactly. I think it was Peters, In Search of Excellence.
Rennie Gabriel 12:04
Mm hmm.
Jeff Prager 12:05
Who said, "stick to the knitting".
Rennie Gabriel 12:09
Yeah, well . . .
Jeff Prager 12:10
Which means stay with what you know.
Rennie Gabriel 12:12
Right.
Jeff Prager 12:13
Now, I love what I do. But if you don't love what you do, that's a whole different discussion.
Rennie Gabriel 12:20
Oh, yes. So, we're not, yeah, that's for another episode.
Jeff Prager 12:27
Right. But if you like what you're doing, then just do it. It's the old saying, if you're doing something well - do more of it. If you're doing something poorly - do less something.
Rennie Gabriel 12:39
Yeah, and if you're enjoying what you're doing, everything's going to work.
Jeff Prager 12:44
I won't go that far. You've got to plan.
Rennie Gabriel 12:46
Oh, okay.
Jeff Prager 12:47
You've got to plan. But oh . . .
Rennie Gabriel 12:50
Yeah, yeah. But I'm saying . . .
Jeff Prager 12:51
Everybody thinks it's so magical. It's not. It's… we've got it down to a system. And when you have a system, it's easy to figure out what's working, what's not.
Rennie Gabriel 13:03
Yeah.
Jeff Prager 13:04
And correct it very quickly.
Rennie Gabriel 13:05
But what I'm saying is, even with the systems, if you're doing something you don't like, it's not going to turn out as well as if you're doing something you like. And yes, you follow the systems. And you have the plans, and you see what your numbers are. You know, my podcast is doing well, because I'm enjoying it. I'm enjoying meeting new people. I'm enjoying connecting with the people like you that I've known and contributing to others. So it makes it easy.
Jeff Prager 13:32
And the fact of the matter is, you're giving more than you're getting.
Rennie Gabriel 13:38
Yes.
Jeff Prager 13:39
And that's what makes a difference, I think.
Rennie Gabriel 13:42
Let's see, another question, Oh, is there a case study you can use or, give an example of something, where a client you've worked with who followed the system - how things turned out for them?
Jeff Prager 14:00
Well, this happened recently, we took on somebody, a painting company.
Rennie Gabriel 14:06
They paint buildings or houses or something?
Jeff Prager 14:08
Houses, residential painting.
Rennie Gabriel 14:10
Okay.
Jeff Prager 14:10
Exterior. After two years in business, the second year they lost $204,000. The first year, it wasn't quite as bad but that was their startup year. And we looked at their numbers and we have a dashboard. We look at what drives the numbers, not the numbers themselves, and the numbers tell us a story. I kept saying his pricing was bad. So after last year, he goes, 'You know what, I agree my pricing must be bad. That's what I thought was the problem.' And we looked at it, and I said, 'Okay, let's figure out an algorithm for your pricing.' And we did. And he goes, 'I can't charge that much. That's more than my competition.' Well, if you look at it 50% of all businesses, according to the SBA never make it to their 5 year anniversary, I think the number is much higher. I think it's closer to 80%.
Rennie Gabriel 14:33
That Could be, yeah.
Jeff Prager 14:46
And then according to Forbes, 80% of those businesses will never get to the 10th anniversary. So that gives you a 4% chance of success. So if you're matching the industry statistics, what are the chances you're going to be successful? Very low.
Rennie Gabriel 15:30
Right.
Jeff Prager 15:31
Right? So, and that's always been my problem with industry averages, is they're 'average'. And if you look at the percentages that are going out of business, you're setting yourself up to fail. So we changed his whole messaging, raised his prices considerably. His volume actually went up. His gross profit went up. And as of August, his profit was $881,000 this year. Cash in the bank was six hundred grand, and he had no more debt.
Rennie Gabriel 16:11
Well, that's a $1 million swing from a loss of 200,000 to a profit of 800,000.
Jeff Prager 16:21
Correct.
Rennie Gabriel 16:22
Yeah.
Jeff Prager 16:22
And, and he was one of those businesses, he was losing money but he thought he could make it up on volume. Right?
Rennie Gabriel 16:30
Yeah, I love that expression...
Jeff Prager 16:31
And the faster he grew, the more money he lost. Now, people don't understand that's not the formula.
Rennie Gabriel 16:38
I know. When I hear that, I just know it's a joke. Let me ask you, is there something that you can provide to our listeners that would support them in this area?
Jeff Prager 16:51
Well, yeah, there's something called elasticity in pricing. It's how sensitive your pricing is. And I found that the single most place where I've helped people is in their pricing.
Rennie Gabriel 17:06
Mm hmm.
Jeff Prager 17:07
And what they don't understand is that, let's say you're getting a 30% gross margin, and you discount it to 20%. You've got to do 50% more business to get to the same place.
Rennie Gabriel 17:21
Mm hmm.
Jeff Prager 17:24
And instead of getting 30 cents for every dollar over your breakeven - that's money you can put in your pocket - you're only getting 20 cents. So you're working harder for less money. Everybody says I want to work, I want to make more money and work less.
Rennie Gabriel 17:41
Yes.
Jeff Prager 17:42
But what they do in their pricing is the exact opposite. It makes them work harder, and get less money. So this, these tables will show you how much if you discount your profit margin, how much extra work you have to do. The second table is the opposite. If you increase your margin, how much less work do you need to do to be in the same place.
Rennie Gabriel 18:13
Got it. Okay, so I'm going to put a link to that it's The CFO Project Pricing Worksheet, I'll put that link in the show notes so people can get it right there. And is there a question I should have asked you, that would still give great value, and obviously not only the question, but what would the answer be?
Jeff Prager 18:35
The question is, how do I run my business for the long-term?
Rennie Gabriel 18:40
Mm hmm.
Jeff Prager 18:41
And the answer is, you got to quit managing by your checkbook. You got to quit managing by your fire of the day. And you've got to start thinking about where you want to end up and put yourself out there 5, 10 years and say, 'What's that organization look like? Who do I need to hire? What am I producing? What am... you know, what does my organizational chart look like? Do I have the right people?' And then manage to where you want to end up - not based on your checkbook. Now there are times you have to. If you're in a position right now, where you're losing money and stuff like that, then the first obligation is to get to break-even. Then the second part is to get beyond break-even, your one year plan. But you've got to have a 5 year, 10 year plan. And let's face it, your numbers are going to be wrong. There's no way you could project out even a week, if you really think about it.
Rennie Gabriel 19:50
Right.
Jeff Prager 19:51
Okay. But that becomes your benchmark. It's like sailing a boat. You know that you want to go from point A to point B, but you've got to tack frequently to get there the fastest way possible. And that would be, okay, why do you set up these benchmarks? So you know when to tack, when to change, when things need changing, so that it becomes an automatic response, as opposed to, 'Oh my gosh, things aren't working out. I don't know where I'm going to be. I don't know where I'm going to end up. I don't know how I'm going to get there. I'm going to just keep fighting fires.' And your business will not succeed.
Rennie Gabriel 20:35
Yeah, Jeff, this was great input. There's a lot for business owners to think about from this conversation you and I have had. And I want to thank you for being on the show.
Jeff Prager 20:46
A pleasure.
Rennie Gabriel 20:48
And to my listeners, thank you for tuning in. And you can listen to the Wealth On Any Income Podcast on your favorite platform. And please rate, review, and subscribe. And if you'd like to know how books, movies, and Society programs you to be poor, and what the cure is, then log on to wealthonanyincome.com/TEDx. You'll hear my TEDx talk and can request a free 27-Page Roadmap to Complete Financial Choice®, and receive a weekly email with tips, techniques, or inspiration around your business or money. Again, that's, wealthonanyincome.com/TEDx. Next week, we'll have as our guest, Fritz Gilbert, who has an award-winning blog about what to do with your life when you no longer have to work for a living. Until next week, be prosperous. Bye bye for now.
