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Episode 66: Contract to Cash Masterclass with The Cash Flow CFO and JKA Solutions – Part 2

May 27, 2024

Episode 66: Contract to Cash Masterclass with The Cash Flow CFO and JKA Solutions – Part 2

“I think the first thing you should be thinking about is your business doesn’t sell on revenue, it sells on profit. It’s going to be a multiple of your profit.”

– Andrea Jenson

Welcome to a brand new episode of the Cash Flow CFO Podcast. Join me on this episode for the second half of a two part series in which I co-host a virtual workshop with Jean Kristensen, the CEO and chief consultant at JKA Solutions. We pick up where we left off by discussing the important topic of owner’s compensation. Many business owners either take money off the top or put themselves on salary, which can strain the business. It’s crucial to dig deeper into how compensation fits within your business model.

Join us to learn the whole story!

“So the passive income that I’m referring to is the individual side… you’ve taken the money, the profits, the client package out of the business, and now you’ve paid taxes on it. You’ve done whatever you need to do based on your business entity structure. And now on the personal side, you’re looking for vehicles that are going to, you know, be putting your money to work for you without you having to actively do a lot there.”

– Andrea Jenson

Planning for Retirement

Another key point is the importance of planning for retirement. Business owners should not rely solely on selling their business for retirement funds, as 80% of businesses up for sale do not sell. It’s essential to have a strategic approach to your compensation, working with tax preparers to find the ideal mix of payroll, distributions, and dividends. Treat your business as an asset that generates passive income, moving active income activities to personal passive income activities over time.

Passive Income Strategies

We also explored the concept of personal passive income. This involves taking profits from the business and investing them in vehicles that generate income with minimal active involvement. Many business owners invest in real estate or high-yield investment accounts. The goal is to have multiple income streams to provide security and reduce reliance on the business alone. Compounding interest and consistent investment can lead to significant growth in personal wealth over time.

Preparing for Business Sale

Finally, we touched on the process of preparing to sell a business. It’s important to understand that businesses sell based on profit, not revenue. To increase the likelihood of a successful sale, business owners need to reduce risk for potential buyers by having a diverse customer base, a solid team, and clean financial records. Planning for the sale should start 3 to 5 years in advance to maximize the business’s value and ensure a smooth transition. Working with a fractional CFO can help you navigate this process, ensuring your business is as profitable and attractive as possible to potential buyers.

“Find a CFO that has a growth mindset. There’s a lot of financial professionals that are risk averse and that doesn’t necessarily need to equate to scaring you…We always say to our clients…we never tell them ‘no’. We always say, ‘sure, let me show you how we can do that’.”

– Andrea Jenson

Want to get in touch with Jean Kristensen?

Website: https://jkasolutions.com/