Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

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episode 117: Her CFO Tips: Thinking of Capital Raising? Address These 5 Business Finance Misconceptions First [transcript]


It takes hard work to move your purpose-driven business closer to your goal while ensuring that it’s sustainable. As you scale your business, you’ll realize that you need to be profitable to amplify your social impact mission. But before you think about capital raising, first and foremost, you need to understand why you need the extra capital. 

In this episode, I discuss five misconceptions — and a bonus sixth! — on business finance that can cloud your headspace. Clearing out these misconceptions can close gaps in your business finance process you may not even know you had. In doing so, you can make more strategic and informed business decisions for your company’s growth.

If you are a mission-driven founder who wants to make the best business finance decisions, then this episode is for you!

3 reasons why you should listen to the full episode: 

  1. Find out five (plus a bonus one) business finance misconceptions that can cloud your business decisions.
  2. Identify the gaps in your business and take steps to create solutions.
  3. Clear your headspace and make the best decisions for you and your business as you look into capital raising.

Episode Highlights

  • [02:14] Know the Five Misconceptions in Business Finance First Before Going into Capital Raising
  • [05:10] #1: High Price and High Volume Equals High Revenue
  • [06:42] #2: Fast Growth Means a More Profitable Situation and More Cash Flow
  • [19:32] #3: Financing Resolves All Cash Flow Issues
  • [11:23] #4: Financial Knowledge Equals Bookkeeping and Taxes
  • [14:39] #5: Forecasts are Pointless
  • [19:06] Bonus: Getting a Business Loan Is Bad

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Write a review and share this with your friends.

Connect With Me
Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me at any time.

Resources

  • Visit Christina Sjahli’s website for more stories on entrepreneurial journeys to success on the Her CEO Journey podcast.
  • Getting ready for capital raising? Identify your financial gaps first by addressing these five business finance misconceptions. Download this quiz


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 2021-05-27  24m
 
 
00:04  Christina Sjahli
When you are
00:04
building a business that focuses
00:06
on affect the necessary change
00:06
in this world, either by
00:09
reducing poverty, or maybe you
00:09
are creating a business that
00:13
focus on gender equal world, or
00:13
maybe achieving other areas
00:17
within the United Nations
00:17
Sustainable Development Goals,
00:21
you work extra harder, because
00:21
you come to realize that profit
00:26
is actually the byproduct of
00:26
your purpose. It means your
00:31
business needs to be profitable.
00:31
So you can use this profit to
00:36
amplify your social impact
00:36
mission. You have this big
00:40
purpose. So the pressure when
00:40
you are struggling to make
00:43
profits, when your business
00:43
doesn't have enough cash at the
00:47
end of each month to pay bills,
00:47
let alone have the cash to
00:51
invest in all the different
00:51
projects for your business, is
00:55
stressful.You are wondering each
00:55
night, '"How can I make this
00:59
work?" And perhaps you are
00:59
thinking, "Hey, I need to raise
01:03
capital. That extra capital
01:03
could help me achieve my goal
01:07
faster."
01:08
If you are thinking about
01:08
raising capital, then I invite
01:12
you to listen to this solo
01:12
episode until the end. You're
01:16
listening to Her CEO Journey,
01:16
the business finance podcast for
01:20
mission-driven women
01:20
entrepreneurs. I'm your host,
01:22
Christina Sjahli. If you are new
01:22
here, a big, warm welcome. If we
01:28
are not connected on LinkedIn,
01:28
please reach out and say hi,
01:31
because that's where I hang out
01:31
and share my business finance
01:35
tips. If you have been listening
01:35
to this podcast for a while, and
01:39
you are a regular listener, I
01:39
want you to know, I appreciate
01:44
you. My podcast won't be around
01:44
without your support. This is a
01:48
free weekly show where my guests
01:48
and I want to inspire you to
01:53
balance between mission and
01:53
profit, to create an impact in
01:57
this world, and to achieve
01:57
financial equality through your
02:01
business.
02:04
Raising capital could certainly
02:04
give your business a short-term
02:08
financial injection. And if you
02:08
are thinking or in the process
02:12
of raising capital, first, you
02:12
need to remove this five
02:17
misconception about business
02:17
finances from your headspace.
02:21
Because this misconception lead
02:21
to future financial problems.
02:27
This can stop you from deploying
02:27
the extra capital you receive
02:31
appropriately, stop you from
02:31
finding the right investors. It
02:36
can also stop you from achieving
02:36
the balance between purpose and
02:41
profit. I know you have worked
02:41
so hard in getting where you are
02:46
today. And the truth is, yes, I
02:46
want more female founders to
02:50
scale their businesses because I
02:50
believe we can build a more
02:55
feminist economy. However,
02:55
before you jump into the wagon
03:00
of capital raising, I want you
03:00
to make sure your headspace is
03:04
on the right track.
03:06  Here's the exciting part
Once
03:06
you have removed all this
03:09
business, finance misconceptions
03:09
and clear your headspace, you
03:13
are ready to take the next step.
03:13
I have created a quiz that can
03:17
help you identify any gaps in
03:17
your business financial
03:21
processes. And you can find the
03:21
link to this quiz in the show
03:25
notes. Why having gaps in the
03:25
business financial process
03:29
matter, you may ask. Often the
03:29
reason why many founders don't
03:35
have financial results they can
03:35
understand and trust. It's
03:38
because the process is not yet
03:38
structured correctly. So this
03:43
quiz can help you identify the
03:43
gaps. Let's say after you take
03:48
the quiz, you realize there are
03:48
gaps. You can connect with us we
03:52
can get your business financial
03:52
process is set up. We combine
03:56
our curiosity and financial
03:56
expertise in a judgment-free
04:01
zone to get the story behind
04:01
your financial number, a story
04:06
you can trust and understand.
04:06
More importantly, you can make
04:10
strategic business decision that
04:10
aligns with your purpose. In the
04:15
meantime, let's find out what
04:15
are those five business finance
04:20
misconception that will stop you
04:20
from growing a profitable and
04:25
sustainable purpose-driven
04:25
business?
04:29  Misconception number one
High
04:29
price and high volume equal
04:34
higher revenue, which means you
04:34
have a profitable business. I
04:38
know right? It's a surprise. How
04:38
could this be a misconception?
04:43
It seems counter-intuitive to
04:43
think that higher revenue does
04:47
not equal a profitable business.
04:47
Let me share with you why this
04:52
is a misconception and you
04:52
should move away from this
04:55  mindset
Revenue is only one
04:55
part of the puzzle in the
04:59
finance formula. Revenue number
04:59
tells a story. That is the
05:04
story, your marketing and sales
05:04
strategy work. And because your
05:09
marketing and sales strategy
05:09
work, you may be able to bring
05:12
in seven figures, multi seven
05:12
figures, or even eight figures
05:17
in revenue. But if you have no
05:17
cost management, for example,
05:22
your costs are way too high in
05:22
certain areas, or it seems like
05:26
you are always struggling to
05:26
make ends meet, or you are
05:29
robbing Peter to pay Paul,
05:29
likely you have no cost
05:33
management process. And if this
05:33
is continuous in the long run,
05:38
your business may not be able to
05:38
survive.
05:41
Now I get it. When you are an
05:41
early stage startup, yes, you
05:46
need to focus on revenue. But as
05:46
you are progressing in your
05:50
business, let's say maybe you
05:50
are getting ready for a series A
05:54
round, the right investors care
05:54
about profitability, not only
06:00
revenue. When you start thinking
06:00
to focus only on revenue, I want
06:06  you to remember this one phrase
Focusing only on revenue is like
06:11
focusing on vanity metrics.
06:11
Because higher revenue does not
06:15
always mean higher
06:15
profitability. You are not just
06:19
building a business for the sake
06:19
of revenue growth alone. You are
06:23
building a business that uses
06:23
profit to create a positive
06:27
impact for employees,
06:27
communities, and the
06:30
environment.
06:34  Misconception number two
Fast
06:34
growth brings a more profitable
06:39
situation and more cash flow. I
06:39
know, this one you also wish
06:45
this is true, isn't it?
06:45
Unfortunately, it is not always
06:50
the case. Especially if you are
06:50
looking into equity financing.
06:54
Yes, some investors are looking
06:54
for fast growth, and they may
06:59
pressure you to grow really
06:59
fast. When you grow fast without
07:04
proactive planning, you may fall
07:04
into this misconception thinking
07:08
fast growth brings more profit
07:08
and more cash flow. So what's
07:13
the trick to grow fast, have
07:13
more profit and more cash flow?
07:18  The answer is simple
In order
07:18
to grow your business and
07:22
continue to be profitable, you
07:22
need to be proactive and have a
07:27
crystal ball. I'm serious. I'm
07:27
not joking here. You can have
07:32
somewhat a crystal ball for your
07:32
business if you use a tool
07:36
called financial modeling. I use
07:36
financial modeling all the time
07:41
with my clients. And this tool
07:41
is really powerful because it
07:47
helps me to translate their
07:47
vision into financial number, so
07:52
they can have a clear path to
07:52
make strategic business decision
07:56
that results in more profit and
07:56
more cash.
08:00
Let me give you an example to
08:00
illustrate why fast growth does
08:04
not mean a more profitable
08:04
business and more cash flow if
08:08
you are not proactive and have a
08:08
tool to forecast the future.
08:13
Let's imagine for a second, you
08:13
are in a business of providing
08:18
flexible share workspaces, where
08:18
people can come in and rent a
08:22
small space by the day or month
08:22
from you. Business is booming,
08:27
revenue is higher, and you want
08:27
to expand by opening more
08:31
location because you think more
08:31
location equal more profit, and
08:37
more casual.
08:38
So you continue to expand across
08:38
more locations across the globe.
08:43
Because you know there is a
08:43
great demand for this type of
08:46
office space. Expanding the
08:46
multiple locations across the
08:50
globe is super exciting, really.
08:50
At the same time, have you
08:55
thought about the additional
08:55
overhead costs, the additional
08:59
investment you have to put into
08:59
the new locations? Have you
09:02
figured out if your first
09:02
location generate enough cash to
09:06
support the additional overhead
09:06
and investment? If you move
09:11
ahead with the expansion plan
09:11
without thinking proactively,
09:15
the outcome can be detrimental
09:15
to your business. If you have
09:19
done some financial modeling and
09:19
seeing the outcome on paper, you
09:23
may have realized your growth
09:23
strategy won't work in the long
09:27
run. It may work in the
09:27
short-term, but not in the long
09:30
run. You may have realized that
09:30
you just don't have enough cash
09:35
to cover the additional overhead
09:35
and investment. I encourage you
09:40
to do your homework. Understand
09:40
the challenges ahead, especially
09:44
in today's uncertain
09:44
environment. Then, translate
09:48
your strategies into financial
09:48
number so you can see if your
09:52
strategy will result in profit
09:52
to expand your social impact
09:57
before you waste limited
09:57
sources.
10:04  Misconception number three
Financing resolves all my cash
10:09
flow issues. And this is similar
10:09
to misconception number one; it
10:15
is counter-intuitive. If you
10:15
receive extra capital, then
10:19
technically, it should solve all
10:19
your cash flow issues, right?
10:24
Unfortunately, this is not
10:24
always the case and I will
10:28
explain to you why this is not
10:28
the case. When you get approved
10:33
for extra capital, either by a
10:33
lender or an investor, yes,
10:38
there will be more cash in your
10:38
bank. And you're going to feel
10:41
happy because now, your bank
10:41
account has a significant
10:45
balance. So, technically, it is
10:45
logical to think that it will
10:49
solve all your cash flow issues
10:49
in the short-term.
10:53
What about for the long-term?
10:53
Let's think about it this way:
10:58
If prior to receiving the extra
10:58
capital, you have not identified
11:03
those costly or unnecessary
11:03
expenses, those money holes I
11:08
call it, then sadly, the
11:08
bleeding will continue. Even
11:12
after you receive the fund,
11:12
likely you are wasting the extra
11:16
capital received. Because you
11:16
don't know what the money hole
11:21
is, where is the money hole in
11:21
your business, and why you need
11:24
to close up the hole that causes
11:24
all the cash flow leaking. And
11:29
guess what? Some time those
11:29
money holes, which I also refer
11:34
to as a cash flow gap, can
11:34
happen due to a breakdown in the
11:38
internal process. And if you fix
11:38
the breakdown in the internal
11:42
process, you don't need
11:42
additional financing.
11:46
Other times a cash flow issue
11:46
can happen only for a short
11:51
period, but you are not aware.
11:51
So you rush to get the type of
11:56
financing with a long-term
11:56
commitment, resulting in you
12:00
spending more on the borrowing
12:00
costs. That's why when clients
12:04
told me they needed financing, I
12:04
make sure they understand that
12:08
financing is a bridge not a
12:08
solution to their cash flow
12:13
problem. I make sure to find out
12:13
what is the real issue. And if
12:17
this client really needs to
12:17
raise capital, or is it simply a
12:21
breakdown in the internal
12:21
process. So before you decide to
12:26
raise capital, make sure, make
12:26
sure you get clear advice from
12:31
your CFO to ensure financing is
12:31
the best and only option to your
12:36
cash flow problem. Because you
12:36
don't want to enter into any
12:39
financing agreement and end up
12:39
in a bigger struggle.
12:47  Misconception number four
Financial knowledge for small
12:51
businesses equal bookkeeping and
12:51
taxes. Don't get me wrong here,
12:57
bookkeeping and taxes are key.
12:57
They are the foundation you need
13:01
them in place. I cannot work
13:01
with a client if their
13:05
bookkeeping is messy, because it
13:05
is the foundation for other
13:09
areas in the business finance.
13:09
But if you think financial
13:14
knowledge stop at bookkeeping
13:14
and taxes, then again, you will
13:18
have a problem in the long run.
13:18
That's because bookkeeping is
13:23
about recording transactions
13:23
that already happen within your
13:28
business. It is about the past.
13:28
You need to understand the past,
13:33
but you cannot live in the past,
13:33
right? And taxes is about
13:37
preparing your tax return and
13:37
how much to pay the government.
13:42
Only knowing your past
13:42
transaction and paying your
13:45
taxes won't resolve your
13:45
long-term issue. What you need
13:49
are tools to help you look
13:49
forward. Cash flow management
13:53
process. financial modeling, and
13:53
scenario analysis are the tools
13:58
that you need. This is when the
13:58
magic happen when you combine
14:03
all aspects of your business
14:03
from marketing, sales, human
14:07
resources production, and use
14:07
these tools to predict the
14:10
future story of your business,
14:10
that's when your business will
14:14
transform. You need more than
14:14
getting your bookkeeping
14:17
organized and taxes filed.
14:20
Let me give you a real example
14:20
to show you why I said financial
14:24
knowledge is not equal to
14:24
bookkeeping and taxes. I had a
14:28
client when they came to me they
14:28
had a bookkeeper and tax
14:33
accountant as part of their
14:33
team. But the bookkeeper and tax
14:37
accountant could not explain why
14:37
their line of credit continues
14:42
to increase even though their
14:42
revenue increases every year.
14:46
And the real issue was they
14:46
didn't have a cash flow
14:50
management process. Once we put
14:50
a cash flow management process
14:55
in place, they were able to
14:55
understand what is their weekly
14:59
and monthly burn rate. They also
14:59
know which customer will pay
15:04
over the next 90 days. And also
15:04
as part of analyzing cashflow on
15:09
a weekly basis together with me,
15:09
they finally realized there was
15:14
a mismatch between when their
15:14
customers paid them. And when
15:18
they had to pay the suppliers.
15:18
This mismatch made them continue
15:22
using their line of credit. Once
15:22
we know the real issue, my
15:26
client was able to negotiate
15:26
better terms with their
15:30
suppliers and customer. So there
15:30
is no mismatch. Slowly but
15:34
surely, they stop using the line
15:34
of credit. That's what I call
15:38
the power of financial
15:38
knowledge. When you have the
15:42
right tools and processes to
15:42
check your business financial
15:46
polls regularly, you can be
15:46
profitable and use this profit
15:51
to power up your social impact
15:51
mission.
15:57  Misconception number five
Don't
15:57
bother doing a forecast. It's
16:03
pointless as we cannot control
16:03
the external factors like
16:06
recession or pandemic. So how
16:06
many of you are thinking like
16:11
this or have heard someone else
16:11
say this to you? If we are on a
16:17
Zoom call right now, I think I
16:17
can see a little smile from you.
16:22
Maybe you hadn't thought about
16:22
doing a forecast. Or maybe you
16:26
are thinking, "What's a
16:26
forecast?" If that's what you
16:30
are thinking, don't worry, I am
16:30
here to share this concept of
16:34
forecasting. By the end of this,
16:34
you will understand what is a
16:38
forecast. A forecast is a
16:38
roadmap. This roadmap combines
16:43
what has worked in the past, and
16:43
what can work for you in the
16:48
future. This roadmap will give
16:48
you greater clarity because you
16:52
are able to see how all aspects
16:52
of your business work together
16:57
from marketing, sales, finance,
16:57
human resources, operations, and
17:01
production. It allows you to be
17:01
ready for any unexpected events.
17:06
It helps you to plan for the
17:06
cash flow gap before it happens.
17:12
It helps you to identify
17:12
financing needs. It guides you
17:16
to see if you have the resources
17:16
to invest in different projects.
17:21
Those are only few benefits of
17:21
having a forecast for your
17:25
business.
17:26
Let me share with you another
17:26
business owner who came to
17:30
realize the power of having a
17:30
forecast for her business. A
17:36
product based business owner
17:36
came to me towards the end of
17:40
2019. So a few months before
17:40
anyone knows the pandemic's
17:45
going to head. It is a seven
17:45
figure business, but she was
17:49
robbing Peter to pay Paul. There
17:49
was no profit. We work together
17:55
first by understanding why as a
17:55
seven figure business, she
18:00
continued to struggle. Obviously
18:00
her revenue number tells me her
18:05
marketing and sales process
18:05
work. But when I continue to
18:10
work with her and then asking
18:10
the right question, what I
18:14
realized, she didn't have a
18:14
forecast, she didn't have a
18:18
roadmap guiding her business
18:18
decision. She thought her
18:22
roadmap is the bank balance. As
18:22
long as she had a positive
18:26
balance in the bank, she would
18:26
be fine to spend it. That's why
18:30
she continue to lose money and
18:30
have no profit. Once we createed
18:36
a 90 days and 12 months forecast
18:36
and review it together every
18:40
month, she has a clear picture
18:40
of her future commitment to
18:44
purchase order for her raw
18:44
materials. In a product based
18:49
business, this is huge. She
18:49
knows when and how much she
18:53
needs to use the business line
18:53
of credit only to bridge the
18:57
short-term gap between when she
18:57
received money from her
19:00
customers versus when she pays
19:00
her suppliers and manufacturers.
19:06
And she is now able to know
19:06
which products are the slower
19:10
moving inventories, then create
19:10
bundle offers to bring in cash
19:15
faster, so her cash doesn't get
19:15
stuck in inventories.
19:20
Then the pandemic hit in March.
19:20
We use the forecast to put
19:25
brakes quickly on certain
19:25
projects that won't bring in
19:29
cash to the business in the
19:29
short-term. Instead, she chose
19:33
to use the cash to continue
19:33
paying her employees. That was a
19:38
priority for her. Also her
19:38
suppliers were important. So she
19:43
made arrangements to pay them
19:43
upfront so they could survive.
19:47
She was able to do what was
19:47
important to her value because
19:52
she had a forecast in place
19:52
which enable her to make the
19:56
right decision and keep her
19:56
business running sustainably,
20:01
despite the pandemic happening.
20:01
That's what becomes possible
20:05
when you have a clear forecast
20:05
in place.
20:11
I know I mentioned I was only
20:11
going to share five
20:15
misconception with you. But I
20:15
have one more I want to share.
20:19
It's a bonus misconception.
20:19
Misconception number six:
20:24
Getting a business loan is bad.
20:24
I have heard female founders
20:29
chose to get equity financing
20:29
instead of a loan. It depends on
20:34
where you are in the business
20:34
and why you need this extra
20:37
capital. Remember what I said in
20:37
misconception number three? So
20:42
not all business loan is bad.
20:42
This misconception can stop your
20:47
social impact business from
20:47
expanding to the next level.
20:51
Let's use this pandemic as an
20:51
example. Let's say you are a
20:56
product-based business who
20:56
didn't have a strong online
20:58
presence. It's okay to borrow
20:58
money to build and grow your
21:03
online presence as a way to
21:03
create a new revenue stream.
21:08
Given, of course, before the
21:08
pandemic, you were doing great.
21:12
You were able to pay all your
21:12
expenses timely, including
21:16
yourself. So really, you didn't
21:16
have any cash flow issues. You
21:21
simply need a bridge to get you
21:21
to the other side. A business
21:26
debt is a bridge. As long as you
21:26
take out business debt with
21:31
purpose and create a clear plan
21:31
on how to repay this debt, then
21:36
you are doing the right thing
21:36
for your business. That's good
21:39
debt because there is a clear
21:39
purpose and a plan in place.
21:47
There you have it. Now you know
21:47
the common business finance
21:51
misconceptions that can stop you
21:51
from growing a profitable and
21:55
sustainable purpose-driven
21:55
business. I want to summarize
21:59
all of this misconceptions
21:59
because I know it's a lot. But I
22:03
really want you to remember all
22:03
of this misconceptions because
22:06
it's important. So number one,
22:06
high price and high volume equal
22:12
higher revenue, which means you
22:12
have a profitable business. Now,
22:17
you know, it is not always the
22:17
case. Number two, fast growth
22:22
brings a more profitable
22:22
situation and morecash flow. You
22:27
also know this is not always the
22:27
case. Number three, financing
22:32
resolve all of my cash flow
22:32
issues. No, it won't. Number
22:38
four, financial knowledge for
22:38
small businesses equals
22:42
bookkeeping and taxes. It is
22:42
actually more than that. Number
22:47
five, don't bother doing a
22:47
forecast. It's pointless, as we
22:52
cannot control the accidental
22:52
factors, like recession or
22:55
pandemic. It is not pointless.
22:55
It is paramount. Number six,
23:01
getting a business loan is bad.
23:01
No, it's not. It's good when
23:06
there is purpose and a clear
23:06
plan.
23:11
We don't want you to continue
23:11
building and building then run
23:15
out of gas emotionally and
23:15
financially only because you
23:20
don't have anyone to tell you
23:20
about these misconceptions. We
23:25
got you. So now that you have
23:25
clear your headspace from all
23:30
this business finance
23:30
misconception, download the
23:33
quiz, identify the gaps in your
23:33
business financial processes. We
23:38
are here to partner with you so
23:38
you have the capacity to build
23:43
your purpose-driven business
23:43
without worrying about the
23:47
financial aspect of your
23:47
business. When you are ready to
23:50
partner with us. Let's schedule
23:50
a time to chat book a time at
23:55
christinasjahli.com/let-s-chat.