[00:00:00] Lucas: Good afternoon. Welcome to the Building & Growing Podcast. Today we're very pleased to have Joe David from the Nephos Group with us. Welcome Joe!
[00:00:10] Joe: Hello Lucas. Thank you for having me. Excited to be here.
[00:00:13] Lucas: You're most welcome. Today, we have quite a special recording studio in Joe's office in Cheltenham which is west of London, near the Cotswolds. Thank you for hosting the podcast here!
[00:00:30] Joe: Thanks for traveling all this way, just for this podcast.
[00:00:33] Lucas: No problem. No worries at all! Joe, tell us a bit about yourself and the Nephos Group.
[00:00:40] Joe: Yeah. So, I run the Nephos Group. We are a professional services group of companies, focusing on one of our main verticals being accounting, but also focusing heavily in the cryptocurrency space. We also have a wealth management arm, a mortgages arm and we're just about to bring in a corporate finance arm as well. Our vision is to support a founder entrepreneur in the kind of traditional space, but also really focusing on that crypto space. Just everything that you need as a founder, we really want to be there you.
[00:01:15] Lucas: Fantastic! That's great. Joe, I suppose one of the reasons that I was so excited about this podcast today, is the fact that professional services firms and accounting firms in particular are almost recession proof in the sense that they are the trusted advisors.
[00:01:40] Joe: We should touch some wood at this point just to make sure that we don't jinx it!
[00:01:46] Lucas: Yeah but they are such trusted advisors and key for businesses during good times and bad and
[00:02:00] Lucas: given the difficult economic circumstances that we're finding ourselves in, it would be great to understand perhaps, the last time we were in a tough economic period, which was the beginning of the COVID pandemic in 2020. How the Nephos Group was able to support its clients at that point in time?
[00:02:24] Joe: Yeah, absolutely! I think you're right, the COVID situation and the difference we've got now compared to then is, in a way as Accountants and as Professional Advisors we've got an element of control at the moment to an extent. Whereas with the COVID situation, none of us knew what was going to happen, where it was going to happen? We didn't know exactly what businesses were going to be affected and in what way. There were certain businesses that quite quickly, it was obvious that they were going to be shut down or what have you, in terms of government restrictions. So, it was in that sense, it was straightforward to an extent to go after particular businesses to support them in a particular sector. With this time, it's kind of, it's a bit more up in the air around which businesses are going to be affected most. There's going to be no support from the government as such, like there was before. So that would be a much more interesting proposition this time around.
[00:03:29] Lucas: Okay, sure. So last time I suppose there was a couple of weeks before the country and the world almost went into lockdown.
[00:03:41] Lucas: I imagine you would've been receiving various questions from your clients. Can you talk a little about sort of what questions they were asking then versus what questions you might expect them to ask now?
[00:03:57] Joe: Yeah. That's a really interesting question as well. Because again, like I say back then, it was the, the amount of questions that we received was, I would say 85-90% of our client base were on the phone or on emails asking us questions about what can they do or what government support is available? We had to be watching pretty much every night. We had to be watching the briefings from the government that we had here, just in case they would announce anything because from the moment they announced the support package, our clients were kind of asking how does that affect me? What can I do? Et cetera, et cetera. So, I think at that time, the volume of people was significant.
[00:04:37] Joe: The difference this time at the moment anyway is that, a lot of businesses are maybe kind of just fighting on because they can. Actually, the volume of questions we're getting at the moment are probably down at like 10% to 15% of our client base. A real difference between what it was then and because at that point it was such a hard and fast, this is what we're doing; we are shutting down the economy. There is nothing you can do about it. You have no control over that this time. If business owners are able to pivot, we are able to support them to pivot things like that. I think there's much more choice in terms of the different types of questions. Then it was, what support can I have? What will the government give me or my staff, that is going to help us through this period? That was pretty much the only question. What is the support and how do I get it? Right, because that was the most important factor for most businesses. Now, I would say that actually most businesses are focusing on growth that we talk to. Most businesses are focusing on how do they adapt to that growth, maybe to the current climate? Especially in the crypto world, if I'm allowed to talk about that. We do a lot in crypto and the markets are pretty in crypto at the moment. But again, crypto businesses are focusing on the next iteration of the product or the next iteration of the business.
[00:06:13] Joe: So what I love about what we do, is we focus so much on founders, entrepreneurs, crypto businesses, and they're all so positive. They all want to continue that wave of growth. So the questions are definitely different, I would say they're in a much more positive fashion at the moment.
[00:06:32] Lucas: Very interesting the fact that you mentioned, that a lot of the founders might be young entrepreneurial, and I want to touch upon crypto as previously it was talked about as an inflationary hedge, whereas at the moment, crypto isn't necessarily super high, however inflation is high.
[00:07:00] Lucas: So, something that I've seen in other markets in order to prevent cash that businesses are holding from losing value. They might be investing more in inventory. So, previously you will have seen is some businesses looking at holding crypto to hedge against inflation.
[00:07:26] Lucas: Where are you seeing businesses go now that inflation is high, like crypto or other options?
[00:07:34] Joe: That is interesting because you're right to an extent in terms of the crypto market. But since the inflation numbers have officially kind of come out and governments around the world have published actual numbers. They've been between 9-12-15%. We all know that the real inflation rate is much higher than the actual inflation rate that we're given. So actually, crypto has seen an upwards trend since then. A couple of the tokens that I follow quite closely, Aave's been one of them, because I'm heavily involved in the avalanche ecosystem. That's gone from around $15 probably a couple of months ago to around $30, is trading app today. So, in that sense that's doubled. So, if you'd put a hundred grand or a ten grand or whatever into that, you've doubled your money.
[00:08:23] Joe: To an extent crypto has actually taken a little bit of a nudge upwards since the inflation numbers have officially come out. The challenge with crypto is, it's a risky asset, right! So, when there's tough economic times, people take their money out of risky assets and they put them in safe havens. A lot of that time is cash. I think because the first thing that came to my head when you said that was most people aren't doing anything, they're just sitting on cash. Which in my opinion is a terrible inflation hedge. Because your cash is being devalued every time inflation goes up but I think for a lot of business owners, it's such a safe haven for them; than actually losing in inverted commas kind of 8-10% on inflation and people won't always lose that exactly, but losing 8-10% is less risky than putting it in other risky assets such as crypto, stock market, et cetera. But agreed. I used to work in the manufacturing sector and at times like this we would be looking at our cash balance and saying that can we afford now to load up on inventory, especially, if we were buying abroad. The currency fluctuation meant that it was cheaper.
[00:09:38] Joe: I was talking to someone the other day is, I can't remember exactly where they were now, but they were talking about, they're really happy to be trading with the UK at the moment because wherever they were, I can't remember where it was, they were saying that it's much cheaper.
[00:09:53] Lucas: Ah, yes perhaps they're trading with dollars.
[00:09:54] Joe: Yeah. Something I can't remember exactly it was, but they were really excited about the UK right now. Because it's a cheaper market. So for if you are in the dollars, it might have been euro actually. But if you are in the dollars or the euro or whatever, and that currency movement, if you like, has gone in your favour. Then that's an opportunity to utilize in that country. So, if you're a US citizen running a business over there and you're buying from the UK a lot, it probably is a good idea right now. If you get your products cheaper compared to in a few years’ time I suppose.
[00:10:29] Lucas: Are you seeing many people in say or many of your clients in the UK looking at selling abroad, in order to bring in the same amount of income, but be more cost effective now against
[00:10:47] Lucas: a competitor of theirs who prices in dollars?
[00:10:51] Joe: Yeah, absolutely. I think, again that's around the strategic advice that we like to support clients with is, what is it that you want to get, where are you with your business, and the first part of that is you've to get your numbers, right. They've to be right on a timely accurate basis. Without that in my opinion and I am an accountant so I would say this, but without that, I don't think you can accurately make strategic decisions. So, the first thing is about getting those numbers up-to-date. If they're not, if you work with us, they should be because that's what we pride ourselves on!
[00:11:27] Joe: Then once you've got that, you can then start looking at, where's your biggest market. Your biggest market is the USA, for example. So, what strategic decisions can we make, to help you thrive in that US market at the moment. That's kind of how that process would work.
[00:11:46] Lucas: Fantastic! You alluded to numbers a bit there. So my initial reaction is let's dig a bit deeper into the numbers. So, from an accountant standpoint or a virtual CFO standpoint; what numbers would you advise clients to be looking at, at the moment and throughout the recessionary period?
[00:12:14] Joe: It's a really good question. I think clearly you need to monitor revenue. A lot of people will say revenue's not important, it's profit. But the more profit you can make in theory, right? If you only make a million pounds worth of revenue, there's a limit to how much profit you can make of that. If you make a hundred million then there's again we are going to get the margins, but there's more profit available. So, I do think revenue's important despite people saying that actually it's more important you focus on profit. If you are a heavy kind of direct cost-based business or you're a manufacturing business or you're a construction business where you've to buy a lot of stuff; in order to do what you do, then a huge area you should be looking at right now is your kind of direct cost, your direct expenses.
[00:13:01] Joe: Anything that it costs you to run your business; manufacturing, inventory, stuff like that, that's a really key factor. The other thing I would focus on again, if you are buying in goods is how quickly you are buying in those goods, how quickly you are then selling them on if that makes sense. So you can work on things like inventory days, how long you're holding stock for; because ultimately that money is tied up in stock. It's not making you anything. So how much, how quickly you are turning that money around. Then typically again gross profit is a really important factor, because that's within your control. You can go out and find different suppliers, maybe better rates. If the rates are going up, you need to keep an eye on that and then outside of that, I think it's just keeping an eye on how the rest of your business is operating. How are you utilizing some of the costs that you are expending. Software is a big cost for a lot of businesses these days.
[00:13:56] Joe: They've got different software all over the place. I think that's really important. Just focusing on, for me, focusing on the direct attributable cost to your sales and making sure that margin stays, at a rate that you are happy with. And if it fluctuates, look into why.
[00:14:18] Lucas: I think that's very good because you've almost structured it in a funnel. So, revenue at the top, then the direct costs, tracking not just the unit prices or the software licenses for SaaS products but also the inventory days and other metrics to ensure that you're not spending too much. You might, if your inventory days are 30, if you could reduce that to 15.
[00:14:48] Joe: 100% Yeah. You don't hold that cash, as effectively the cash covered into your business. The time it takes that cash to come in and same with creditors and debtors. That's another thing, I've seen on the news there's an advocate group out there at the moment in the UK saying don't pay your energy bills because everyone's struggling apart from the energy providers and therefore you shouldn't pay your bills! I don't agree with that approach. I don't think it's right to say just don't pay people. But a good cash management perspective is don't pay your creditors quicker than you need to and make sure you are collecting your debtors as quickly as you can. That might sound really obvious, but a lot of people go, oh, I'll just pay that invoice, because I've had it. I'll just pay it, get it done. It's out of the way. But as soon as you paid that it's not your money anymore.
[00:15:31] Joe: You've not got it. If you've got 30-60 days of credit on that, you should absolutely be taking the credit that you're given. Because that money then you could potentially use to buy more stock or invest in something else. A good working capital management is probably a good way to put it. Making sure that you are collecting things in quickly as well.
[00:15:54] Lucas: Absolutely. I think that's a very good summary and I think if you asked a lot of businesses and small businesses for those metrics they may not be able to bring them up on hand.
[00:16:07] Joe: No! Ultimately cash is king! If you haven't got cash, you can't run a business. So, having those numbers there, I think is the best way you can manage your cash.
[00:16:20] Lucas: Yes, absolutely. So, Joe, we've covered a lot since we started in terms of understanding your business, how you're able to help out different businesses during the COVID pandemic, which was, I suppose, very much focused on how can I get support? Whereas at the moment, it's a lot more about positioning. We've spoken about inflationary hedges, crypto. It may have come down in the past few months, but since inflation has been rising, crypto prices have also been rising.
[00:17:00] Lucas: You discussed the manufacturing side of things and looking at holding inventory as an inflationary hedge, and then really focusing in on the accounting metrics at the end. So, revenue, direct costs, breaking that down into software costs and then more sort of inventory costs and how long you're holding on to inventory and turning that over and how that affects gross profit and working capital.
[00:17:33] Lucas: So, we've covered a great deal. If you were to give three key takeaways to founders, for the next few months what would they be.
[00:17:44] Joe: I think I would obviously say, have an accountant, but by that I mean, don't just have an accountant. Don't just have somebody that files your accounts, have a strategic partner alongside you. If you want to grow fast, if you want to scale, you need to make sure you are in control of your numbers. So, the first thing I would say is bring someone on board that can support you on that side of it. Secondly, I would say, make sure you as a founder, make sure you know your numbers.
[00:18:12] Joe: I know I've just said, bring someone on, but actually make sure you know enough about your numbers as well. You don't need to be an accountant, you don't need to be an expert, but you need to have your finger on the pulse. When it comes to what those numbers mean and because no matter how good your strategic advisor is, they're not in your business every single day, they can't make a decision like that, which you can do.
[00:18:34] Joe: So, have some understanding. I think lastly, I would say scenario planning. Put together some scenarios, what's a worst case, middle case and best case. What happens in a worst case? A worst case might not actually be the worst case, it might actually be okay. But unless you've kind of mapped a few different options and you've looked at some different scenarios and this point is really interesting. And hopefully I can just talk about it for a second because you hear on the news that, hopefully I'm a little bit controversial sometimes, so hopefully you don't mind but; you look on the news and they say that the government has, I saw this today, said in the UK that they are planning for blackouts in the winter.
[00:19:19] Lucas: I think I read that as well - four days in January.
[00:19:23] Joe: It's a headline on all these news and all other mainstream media. But when you actually read a little bit more about what is actually said they are planning for multiple different scenarios. That is one scenario that they are planning for. Which in my opinion is fantastic strategic planning. But from a media perspective, what they're saying to you is: oh my God, we're going to have blackouts! But that isn't necessarily the case. So, the point I’m trying to make there is, even at government level we are making plans across the board right from the top, in terms of what the great scenario would be with this situation and then also what would be a terrible scenario. That terrible scenario would be a blackout.
[00:20:02] Lucas: I think that was a reasonable worst-case scenario, which isn't something that they included in the headline.
[00:20:08] Joe: They also said, if you read it a little bit more, they also said that the government does not expect that to happen, but they plan for every eventuality. That's not a political comment. You have your own views on government whether they do good, bad jobs and I'm not suggesting they do a good or a bad job. The point I'm trying to make is strategic planning, scenario planning is really important. While sometimes we might hear that in headlines, but actually, what's happening there is prudent business planning. I think it's a great thing that people are doing that.
[00:20:39] Lucas: Yeah. Fantastic takeaways. Number one: get an accountant who can act as a strategic advisor. Number two: really know your own numbers, know your financials so that you can discuss them with confidence with your accountant or with staff members. And the third one: set out to plan for different scenarios, best case, worst case, and a base case let's say in the middle is a great way to do it. Joe, thank you so much for joining us today!
[00:21:13] Joe: Certainly.
[00:21:14] Lucas: Hopefully we'll do another one soon, which talks about the recovery and let's hope that
[00:21:23] Joe: It's not too far away.
[00:21:25] Lucas: Indeed! Exactly! Excellent! Thanks so much, Joe!
[00:21:28] Joe: Cheers! Good to see you!
[00:00:10] Joe: Hello Lucas. Thank you for having me. Excited to be here.
[00:00:13] Lucas: You're most welcome. Today, we have quite a special recording studio in Joe's office in Cheltenham which is west of London, near the Cotswolds. Thank you for hosting the podcast here!
[00:00:30] Joe: Thanks for traveling all this way, just for this podcast.
[00:00:33] Lucas: No problem. No worries at all! Joe, tell us a bit about yourself and the Nephos Group.
[00:00:40] Joe: Yeah. So, I run the Nephos Group. We are a professional services group of companies, focusing on one of our main verticals being accounting, but also focusing heavily in the cryptocurrency space. We also have a wealth management arm, a mortgages arm and we're just about to bring in a corporate finance arm as well. Our vision is to support a founder entrepreneur in the kind of traditional space, but also really focusing on that crypto space. Just everything that you need as a founder, we really want to be there you.
[00:01:15] Lucas: Fantastic! That's great. Joe, I suppose one of the reasons that I was so excited about this podcast today, is the fact that professional services firms and accounting firms in particular are almost recession proof in the sense that they are the trusted advisors.
[00:01:40] Joe: We should touch some wood at this point just to make sure that we don't jinx it!
[00:01:46] Lucas: Yeah but they are such trusted advisors and key for businesses during good times and bad and
[00:02:00] Lucas: given the difficult economic circumstances that we're finding ourselves in, it would be great to understand perhaps, the last time we were in a tough economic period, which was the beginning of the COVID pandemic in 2020. How the Nephos Group was able to support its clients at that point in time?
[00:02:24] Joe: Yeah, absolutely! I think you're right, the COVID situation and the difference we've got now compared to then is, in a way as Accountants and as Professional Advisors we've got an element of control at the moment to an extent. Whereas with the COVID situation, none of us knew what was going to happen, where it was going to happen? We didn't know exactly what businesses were going to be affected and in what way. There were certain businesses that quite quickly, it was obvious that they were going to be shut down or what have you, in terms of government restrictions. So, it was in that sense, it was straightforward to an extent to go after particular businesses to support them in a particular sector. With this time, it's kind of, it's a bit more up in the air around which businesses are going to be affected most. There's going to be no support from the government as such, like there was before. So that would be a much more interesting proposition this time around.
[00:03:29] Lucas: Okay, sure. So last time I suppose there was a couple of weeks before the country and the world almost went into lockdown.
[00:03:41] Lucas: I imagine you would've been receiving various questions from your clients. Can you talk a little about sort of what questions they were asking then versus what questions you might expect them to ask now?
[00:03:57] Joe: Yeah. That's a really interesting question as well. Because again, like I say back then, it was the, the amount of questions that we received was, I would say 85-90% of our client base were on the phone or on emails asking us questions about what can they do or what government support is available? We had to be watching pretty much every night. We had to be watching the briefings from the government that we had here, just in case they would announce anything because from the moment they announced the support package, our clients were kind of asking how does that affect me? What can I do? Et cetera, et cetera. So, I think at that time, the volume of people was significant.
[00:04:37] Joe: The difference this time at the moment anyway is that, a lot of businesses are maybe kind of just fighting on because they can. Actually, the volume of questions we're getting at the moment are probably down at like 10% to 15% of our client base. A real difference between what it was then and because at that point it was such a hard and fast, this is what we're doing; we are shutting down the economy. There is nothing you can do about it. You have no control over that this time. If business owners are able to pivot, we are able to support them to pivot things like that. I think there's much more choice in terms of the different types of questions. Then it was, what support can I have? What will the government give me or my staff, that is going to help us through this period? That was pretty much the only question. What is the support and how do I get it? Right, because that was the most important factor for most businesses. Now, I would say that actually most businesses are focusing on growth that we talk to. Most businesses are focusing on how do they adapt to that growth, maybe to the current climate? Especially in the crypto world, if I'm allowed to talk about that. We do a lot in crypto and the markets are pretty in crypto at the moment. But again, crypto businesses are focusing on the next iteration of the product or the next iteration of the business.
[00:06:13] Joe: So what I love about what we do, is we focus so much on founders, entrepreneurs, crypto businesses, and they're all so positive. They all want to continue that wave of growth. So the questions are definitely different, I would say they're in a much more positive fashion at the moment.
[00:06:32] Lucas: Very interesting the fact that you mentioned, that a lot of the founders might be young entrepreneurial, and I want to touch upon crypto as previously it was talked about as an inflationary hedge, whereas at the moment, crypto isn't necessarily super high, however inflation is high.
[00:07:00] Lucas: So, something that I've seen in other markets in order to prevent cash that businesses are holding from losing value. They might be investing more in inventory. So, previously you will have seen is some businesses looking at holding crypto to hedge against inflation.
[00:07:26] Lucas: Where are you seeing businesses go now that inflation is high, like crypto or other options?
[00:07:34] Joe: That is interesting because you're right to an extent in terms of the crypto market. But since the inflation numbers have officially kind of come out and governments around the world have published actual numbers. They've been between 9-12-15%. We all know that the real inflation rate is much higher than the actual inflation rate that we're given. So actually, crypto has seen an upwards trend since then. A couple of the tokens that I follow quite closely, Aave's been one of them, because I'm heavily involved in the avalanche ecosystem. That's gone from around $15 probably a couple of months ago to around $30, is trading app today. So, in that sense that's doubled. So, if you'd put a hundred grand or a ten grand or whatever into that, you've doubled your money.
[00:08:23] Joe: To an extent crypto has actually taken a little bit of a nudge upwards since the inflation numbers have officially come out. The challenge with crypto is, it's a risky asset, right! So, when there's tough economic times, people take their money out of risky assets and they put them in safe havens. A lot of that time is cash. I think because the first thing that came to my head when you said that was most people aren't doing anything, they're just sitting on cash. Which in my opinion is a terrible inflation hedge. Because your cash is being devalued every time inflation goes up but I think for a lot of business owners, it's such a safe haven for them; than actually losing in inverted commas kind of 8-10% on inflation and people won't always lose that exactly, but losing 8-10% is less risky than putting it in other risky assets such as crypto, stock market, et cetera. But agreed. I used to work in the manufacturing sector and at times like this we would be looking at our cash balance and saying that can we afford now to load up on inventory, especially, if we were buying abroad. The currency fluctuation meant that it was cheaper.
[00:09:38] Joe: I was talking to someone the other day is, I can't remember exactly where they were now, but they were talking about, they're really happy to be trading with the UK at the moment because wherever they were, I can't remember where it was, they were saying that it's much cheaper.
[00:09:53] Lucas: Ah, yes perhaps they're trading with dollars.
[00:09:54] Joe: Yeah. Something I can't remember exactly it was, but they were really excited about the UK right now. Because it's a cheaper market. So for if you are in the dollars, it might have been euro actually. But if you are in the dollars or the euro or whatever, and that currency movement, if you like, has gone in your favour. Then that's an opportunity to utilize in that country. So, if you're a US citizen running a business over there and you're buying from the UK a lot, it probably is a good idea right now. If you get your products cheaper compared to in a few years’ time I suppose.
[00:10:29] Lucas: Are you seeing many people in say or many of your clients in the UK looking at selling abroad, in order to bring in the same amount of income, but be more cost effective now against
[00:10:47] Lucas: a competitor of theirs who prices in dollars?
[00:10:51] Joe: Yeah, absolutely. I think, again that's around the strategic advice that we like to support clients with is, what is it that you want to get, where are you with your business, and the first part of that is you've to get your numbers, right. They've to be right on a timely accurate basis. Without that in my opinion and I am an accountant so I would say this, but without that, I don't think you can accurately make strategic decisions. So, the first thing is about getting those numbers up-to-date. If they're not, if you work with us, they should be because that's what we pride ourselves on!
[00:11:27] Joe: Then once you've got that, you can then start looking at, where's your biggest market. Your biggest market is the USA, for example. So, what strategic decisions can we make, to help you thrive in that US market at the moment. That's kind of how that process would work.
[00:11:46] Lucas: Fantastic! You alluded to numbers a bit there. So my initial reaction is let's dig a bit deeper into the numbers. So, from an accountant standpoint or a virtual CFO standpoint; what numbers would you advise clients to be looking at, at the moment and throughout the recessionary period?
[00:12:14] Joe: It's a really good question. I think clearly you need to monitor revenue. A lot of people will say revenue's not important, it's profit. But the more profit you can make in theory, right? If you only make a million pounds worth of revenue, there's a limit to how much profit you can make of that. If you make a hundred million then there's again we are going to get the margins, but there's more profit available. So, I do think revenue's important despite people saying that actually it's more important you focus on profit. If you are a heavy kind of direct cost-based business or you're a manufacturing business or you're a construction business where you've to buy a lot of stuff; in order to do what you do, then a huge area you should be looking at right now is your kind of direct cost, your direct expenses.
[00:13:01] Joe: Anything that it costs you to run your business; manufacturing, inventory, stuff like that, that's a really key factor. The other thing I would focus on again, if you are buying in goods is how quickly you are buying in those goods, how quickly you are then selling them on if that makes sense. So you can work on things like inventory days, how long you're holding stock for; because ultimately that money is tied up in stock. It's not making you anything. So how much, how quickly you are turning that money around. Then typically again gross profit is a really important factor, because that's within your control. You can go out and find different suppliers, maybe better rates. If the rates are going up, you need to keep an eye on that and then outside of that, I think it's just keeping an eye on how the rest of your business is operating. How are you utilizing some of the costs that you are expending. Software is a big cost for a lot of businesses these days.
[00:13:56] Joe: They've got different software all over the place. I think that's really important. Just focusing on, for me, focusing on the direct attributable cost to your sales and making sure that margin stays, at a rate that you are happy with. And if it fluctuates, look into why.
[00:14:18] Lucas: I think that's very good because you've almost structured it in a funnel. So, revenue at the top, then the direct costs, tracking not just the unit prices or the software licenses for SaaS products but also the inventory days and other metrics to ensure that you're not spending too much. You might, if your inventory days are 30, if you could reduce that to 15.
[00:14:48] Joe: 100% Yeah. You don't hold that cash, as effectively the cash covered into your business. The time it takes that cash to come in and same with creditors and debtors. That's another thing, I've seen on the news there's an advocate group out there at the moment in the UK saying don't pay your energy bills because everyone's struggling apart from the energy providers and therefore you shouldn't pay your bills! I don't agree with that approach. I don't think it's right to say just don't pay people. But a good cash management perspective is don't pay your creditors quicker than you need to and make sure you are collecting your debtors as quickly as you can. That might sound really obvious, but a lot of people go, oh, I'll just pay that invoice, because I've had it. I'll just pay it, get it done. It's out of the way. But as soon as you paid that it's not your money anymore.
[00:15:31] Joe: You've not got it. If you've got 30-60 days of credit on that, you should absolutely be taking the credit that you're given. Because that money then you could potentially use to buy more stock or invest in something else. A good working capital management is probably a good way to put it. Making sure that you are collecting things in quickly as well.
[00:15:54] Lucas: Absolutely. I think that's a very good summary and I think if you asked a lot of businesses and small businesses for those metrics they may not be able to bring them up on hand.
[00:16:07] Joe: No! Ultimately cash is king! If you haven't got cash, you can't run a business. So, having those numbers there, I think is the best way you can manage your cash.
[00:16:20] Lucas: Yes, absolutely. So, Joe, we've covered a lot since we started in terms of understanding your business, how you're able to help out different businesses during the COVID pandemic, which was, I suppose, very much focused on how can I get support? Whereas at the moment, it's a lot more about positioning. We've spoken about inflationary hedges, crypto. It may have come down in the past few months, but since inflation has been rising, crypto prices have also been rising.
[00:17:00] Lucas: You discussed the manufacturing side of things and looking at holding inventory as an inflationary hedge, and then really focusing in on the accounting metrics at the end. So, revenue, direct costs, breaking that down into software costs and then more sort of inventory costs and how long you're holding on to inventory and turning that over and how that affects gross profit and working capital.
[00:17:33] Lucas: So, we've covered a great deal. If you were to give three key takeaways to founders, for the next few months what would they be.
[00:17:44] Joe: I think I would obviously say, have an accountant, but by that I mean, don't just have an accountant. Don't just have somebody that files your accounts, have a strategic partner alongside you. If you want to grow fast, if you want to scale, you need to make sure you are in control of your numbers. So, the first thing I would say is bring someone on board that can support you on that side of it. Secondly, I would say, make sure you as a founder, make sure you know your numbers.
[00:18:12] Joe: I know I've just said, bring someone on, but actually make sure you know enough about your numbers as well. You don't need to be an accountant, you don't need to be an expert, but you need to have your finger on the pulse. When it comes to what those numbers mean and because no matter how good your strategic advisor is, they're not in your business every single day, they can't make a decision like that, which you can do.
[00:18:34] Joe: So, have some understanding. I think lastly, I would say scenario planning. Put together some scenarios, what's a worst case, middle case and best case. What happens in a worst case? A worst case might not actually be the worst case, it might actually be okay. But unless you've kind of mapped a few different options and you've looked at some different scenarios and this point is really interesting. And hopefully I can just talk about it for a second because you hear on the news that, hopefully I'm a little bit controversial sometimes, so hopefully you don't mind but; you look on the news and they say that the government has, I saw this today, said in the UK that they are planning for blackouts in the winter.
[00:19:19] Lucas: I think I read that as well - four days in January.
[00:19:23] Joe: It's a headline on all these news and all other mainstream media. But when you actually read a little bit more about what is actually said they are planning for multiple different scenarios. That is one scenario that they are planning for. Which in my opinion is fantastic strategic planning. But from a media perspective, what they're saying to you is: oh my God, we're going to have blackouts! But that isn't necessarily the case. So, the point I’m trying to make there is, even at government level we are making plans across the board right from the top, in terms of what the great scenario would be with this situation and then also what would be a terrible scenario. That terrible scenario would be a blackout.
[00:20:02] Lucas: I think that was a reasonable worst-case scenario, which isn't something that they included in the headline.
[00:20:08] Joe: They also said, if you read it a little bit more, they also said that the government does not expect that to happen, but they plan for every eventuality. That's not a political comment. You have your own views on government whether they do good, bad jobs and I'm not suggesting they do a good or a bad job. The point I'm trying to make is strategic planning, scenario planning is really important. While sometimes we might hear that in headlines, but actually, what's happening there is prudent business planning. I think it's a great thing that people are doing that.
[00:20:39] Lucas: Yeah. Fantastic takeaways. Number one: get an accountant who can act as a strategic advisor. Number two: really know your own numbers, know your financials so that you can discuss them with confidence with your accountant or with staff members. And the third one: set out to plan for different scenarios, best case, worst case, and a base case let's say in the middle is a great way to do it. Joe, thank you so much for joining us today!
[00:21:13] Joe: Certainly.
[00:21:14] Lucas: Hopefully we'll do another one soon, which talks about the recovery and let's hope that
[00:21:23] Joe: It's not too far away.
[00:21:25] Lucas: Indeed! Exactly! Excellent! Thanks so much, Joe!
[00:21:28] Joe: Cheers! Good to see you!