For many entrepreneurs, the big picture comes easily. However, it is important to also understand the foundational tools needed to be successful. Tune in as Michael and Brad are joined by founder and partner of Skytale Group, Jessica Nunn. In this episode we discuss the importance of having a clear financial plan, setting financial goals and mistakes to avoid in your business.

Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at info@byrdadatto.com

Transcript

Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences. Creating simplicity in three, two, one.

Brad: Welcome back to another episode of Legal 123s with ByrdAdatto. I’m your host, Brad Adatto with my cohost Michael Byrd.

Michael: Thanks Brad. As a business and healthcare law firm, a client call is usually a request for help. The problem lies with the client’s timing on when they ask for help. All too often, it’s more like a cry for help, they do not ask for help early enough.

Brad: Michael, I totally agree with that statement, but before we get in today’s episode, you know how much I love to build buildings.

Michael: Brad, I think this is your cry for help. I have known you for 16 years and you’ve literally never said that. And correct me if I’m wrong, but you’ve never even built a house, much less a building.

Brad: This is all very [00:01:00] true. I may not love to build, and actually have no real experience in construction whatsoever, but I am fascinated watching how fast homes and buildings go up in a given day in this age.

Michael: Well, I’m assuming you’re referencing our city before Dallas’s 2020 officially began. That would be the tornado in October of 2019, and before COVID. Because, as we all know, construction has been significantly impacted by the amount of construction that had to come from fixing the area from the tornado, and then with COVID. But really, where are you going with all this?

Brad: Well, as you know, when you build a home or a building, besides having enough capital to pay for it all, you need to start with a great foundation and the framework or otherwise when you’re building, it becomes unstable. And we’ve all heard of these stories where they build this building and it collapses due to some type of [00:02:00] defective foundation.

Michael: How it comes to mind, I’m sure all of us remember in 2019, watching those videos of the 18- story Hard Rock hotel collapse in Vegas while it was under construction. I think it killed two people and injured 20 or so more.

Brad: That’s right. Actually it was in New Orleans where the construction was, but since then, there’s been a ton of lawsuits going back and forth where the developers and the contractors, the subcontractors are all pointing at each other. But when you start reading and hearing what they’re talking about, these allegations were that there was a failure to design the proper support beams and columns, or calculate the proper loads of each floor. And all the plans that were made, were changed and they didn’t have the right support in place. And so basically what started off did not match what actually became the overall structure.

Michael: So we have a guest today. I want to make sure you have not gotten confused, Brad, our guest’s husband builds buildings, but not our [00:03:00] actual guest. So I’m hoping you’re not planning on asking our guests a bunch of questions about construction.

Brad: Okay. Good point. Well, she probably knows more about construction than the two of us combined, even though she’s not doing it herself. But the point of remembering this collapse is these allegations that the people failed to stop and ask the proper questions, if certain modifications would have a negative impact, AKA the building collapsing. And as we get into this today, and we see this all the time, this happens with startup businesses.

Michael: Okay. I think I get it now why you’re bringing up this whole construction analogy. So if you do not have the proper foundation and framing in place, when you start a business, you have the potential of having a catastrophic event.

Brad: Right! Not only will today’s guest help us better understand foundational tools that you need to start your business, but she might even still have actual construction advice since her husband, as you said, is in the construction business. [00:04:00] So Michael, please bring in today’s guest.

Michael: Today, joining us is Jessica Nunn. She is a founder and partner of the Skytale Group. Skytale is a financial consulting firm with services that include financial advising, M&A strategy and business operations advice. And you know that ByrdAdatto gets along well with Skytale because their tagline is deciphering complexity into clarity, which seems like a cousin to our tagline, creating simplicity. Jessica started in a big four public accounting firm, handling tax returns for business owners. She later moved to a middle market accounting firm and shifted more to the consulting side. I debated putting this in, but I’m going to be a big boy. She went to Texas A&M, which is really hard to say as a Texas graduate. She has a BA in accounting and an MS in finance. Her husband is Justin in [00:05:00] construction, as we just talked about, and like any good accountant has two children, one girl and one boy. In her free time, whatever that is these days, Jessica claims to enjoy yoga and reading, but I’ve known Jessica for a long time and I suspect she really just enjoys geeking out on numbers. Jessica, welcome.

Jessica: Yes. Thank you. Thank you very much. I was a little confused at first, like, wait, should my husband be here? I can do this.

Brad: Fair enough. Well, Jessica, we’re excited to have you join us today. Jessica, as Michael mentioned, we have known you for over half a dozen years, and we’ve loved to see how you work with our clients and help them, including us. Can you share with the audience, your background?

Jessica: Sure. Half a dozen years surprised me, but I went back and did the math and you’re right. But wow, time flies huh?

Brad: Yes, of course you did the math, you’re an accountant.

Jessica: Right? So you have to double check [00:06:00] everything. So I started out, like you said, I’m currently a recovering CPA. I was doing tax returns for a while, financial statements, spent some time doing a little bit of audit work, and then I realized that I liked helping people. Talking to business owners, truly making an impact in businesses, a lot more than putting numbers on forms, communicating with the IRS. Just not as fun as you might imagine. So my passion was really helping business owners, specifically small business owners. I tell people that with small business owners, their whole world is their business. So when I’m making an impact in their business, when I’m helping them with their business, and helping them understand their business, then I’m literally changing their life. So that is what drives me. That’s why I love doing what I do. I can see literally them sleeping better at night. They get on the phone and they say, you’ve taught me so much about business, I now know what’s happening in my business. That’s just why I do what I do. So I love it. [00:07:00] I started out kind of general business then started concentrating a little bit more in healthcare, through experience with specific firms that I worked at. And I liked that because again, these guys, typically ladies in healthcare, are working in their business. So not only are they running the business and supervising people, but they’re as a dentist in the mouth or as a surgeon in the operating room. So they love their craft. They love doing what they do, but they don’t always love reviewing their numbers or understanding their business or making the plan. You know, they don’t necessarily like building the foundation. They like doing the work that they went to school for. So I found that niche and really learned that they could use some help on the business side, and they value that help.

Michael: And they probably haven’t had much training on the business side, in their schooling.

Jessica: No, shockingly they haven’t, and you hear that a lot. They went to school to do the thing, you know, to do the surgery, [00:08:00] to do the dental work, but they didn’t go to school to do their QuickBooks or to make a budget or to hire staff. And then it’s a shock, oh, here I am owning a business and I have to learn these things on the fly. So we really try to surround our clients with a team who can support and who can help them to do those things.

Michael: Well, tell us about Skytale group. What made you want to start that and the story behind that, and a little bit more about Skytale.

Jessica: Yeah. So in my effort to recover from CPA work, I realized that I, again, preferred the consulting world more. When I talk with CPAs, now we work closely with CPAs, I’ll say we don’t do tax returns and we don’t do financials. And they say, wait, so you get to just talk to people and just do the advisory? And yeah, that’s what we do. And then, so they’re shocked. Like they feel like, well, [00:09:00] I thought you had to do the tax return. I thought you had to do the financials in order to actually do the fun part. So my partner, Ben Hernandez, and I decided that we only wanted to do the fun part. So we work closely with CPA firms. We ensure that the financials are accurate and timely, but then that’s where we start. And that’s really the part that we love. We think, again, that’s the fun part, taking the data, taking the financials, taking the numbers and turn it into something meaningful for these clients and literally help them run their business with the information. So we started Skytale group just as an effort to focus on that part. Specifically, we wanted to let clients know that they don’t have to build out a huge team, or they don’t have to have an in-house CFO and CEO and COO in order to get world-class advice, that we’re there to help even the smallest of businesses with bigger business and bigger experience thinking.

Brad: So what I learned is Jessica likes to get the cake and eat it too. And she figured out a way to do [00:10:00] that.

Jessica: You know, I’m so proud of my partner and me for being able to describe, envision, exactly what we want and to make that happen. And for our clients in trusting us and then our referral partners for sending us clients and for trusting that we will focus on this and excel on this, and we’re not going to have our head in a tax return for six months out of the year. So we’re available and we’re exactly what clients are looking for. Oftentimes we find that when we started talking with clients, they’re like, well, I need a new CPA. I’ll say, okay, why do you need a new CPA? And they’ll say, well, I turned CPA and I’m asking them, can I afford equipment or is it to hire my next producer? Or I want to integrate another type of producer into my business. How should I pay them? How much revenue do I need? Can I afford it? Am I running out of money? All these questions. And I’ll say, well, It’s possible that your CPA is this isn’t what they’re [00:11:00] doing for you. Right? They’re doing your tax return. They’re preparing your financials, they’re reporting historical information. So is it possible that you’re asking them to do some things that that’s not what they offer. That’s not what they do. We have this expectation, sometimes, that CPA firms are going to offer us this forward thinking advice. Some do, some are great at it. Some do, but not all of them are set up like that. You know, they’re buried in their tax returns, six months out of the year. It’s very hard to be able to come out and focus on some of this forward thinking stuff. So we say, well, I think your CPA is probably doing a great job. Let’s tack onto that. And let’s add on what you’re asking and let’s show you how we can focus on that instead and provide a comprehensive financial strategy for you.

Michael: Yeah. And you know Brad and I, for years before we met you, would always joke that, cause we work with CPAs as you know, quite a bit, and we [00:12:00] would kind of do an assessment. Are we working with a bean counter or a strategist, and it makes a difference because the bean counters have a function on doing the tax returns, but it’s hard to get into a strategy conversation about forward thinking ideas. And so what’s been great is that we don’t have to say, well, are you happy with your CPA? If they have a bean counter, we can just introduce them to you guys to get the strategy side of it.

Brad: Exactly. You know, and Jessica, our theme for this season for the Legal 123s with ByrdAdatto is when should I ask for help? And Jessica, based on your unique background and finding your passion, and it sounds like you got yourself in a great situation with your story that you shared, but can you share a story about maybe when a client failed to ask for help?

Jessica: I can. And you know, [00:13:00] sometimes even, they’re sort of asking for help, but they’re not willing to accept the help that they need in a way.

Michael: I’ve never heard that before.

Jessica: Sometimes that happens. We had a client a while back who was in the healthcare space, which you guys know can be hard to predict in terms of revenue, in terms of expenses, especially if it’s growing quickly, especially if it has out of network contract. So in my time of working with this client, and they did engage with us and they did want help with us and they did, you know, I want to know, I want to understand, but we were never able to prepare a budget to predict revenue, to plan for expenses. As much as I tried, the owners were not willing to slow down and take the time to think these things through. So when you’re starting a business, right, and things are going well, it’s very fast paced. Things are moving quickly. You’re an entrepreneur, you’re a business [00:14:00] owner. Oftentimes what’s more fun; what’s more exciting? To grow the business, right? To go out, to get the customers, to do the things you love it. Things are going great. You hire all these people. You’re collecting enough income, you think, but you’re not sure, but you’re just going to go. So when you’re talking with your advisor and they say, stop. We need to stop and make a plan here. What’s your vision? Let’s think through what’s the vision. How much revenue is going to come in based on what you’re billing, what’s your collection rates? Can you afford all these people you’re hiring? These guys did not take the time to go through that process, so they quickly built their building. But with a quickly put together foundation that maybe wasn’t there to support how tall the building got as quickly as it got. So in the end, we ended up with unpredictable revenue, huge investments in people in space. That’s very hard to undo. [00:15:00] Partners that didn’t necessarily agree on how to share money, on how to grow the business, on what happens at the end. So we start when working with clients, what’s your vision? Where do you want to be? And then let’s work backwards. So start with a vision, we just started with a go, go, go. And we’re just going to hope, and likely there was not good operating documents, partnership, agreements, all that. I know you guys have experienced that. So we weren’t asking for help in taking the time to slow down, really prepare the vision. Figure out how to get from here to there. And in my world, I do that by making a financial plan. So if we don’t make a financial plan, when ends up happening in this case. When you grow too quickly, when you haven’t built your foundation, you don’t know where you’re going. You don’t know if you can trust who you’re doing it with, and you certainly haven’t put together agreements that allow for some of these things to be decided on the front end. Then, [00:16:00] when revenue stops or revenue is paused or something happens to your revenue cycle, you can’t pay your people. You can’t pay for your space. You run out of money, which my job is to ensure that you don’t run out of money. And I do that by having a clear financial plan. So the term run out of money is like the worst in my world. Also, it doesn’t go well for your partners. So you end up in partner disputes, you end up getting sued by people, lots of people, lots of lawsuits. And then your business essentially crumbles to the ground. So that’s a story of how even though we thought we were able to get some more help, the time wasn’t taken to make a plan.

Brad: So what I heard was hope is not a plan.

Jessica: Hope is not a plan. And asking for help is not necessarily getting help. Just because you’re showing up and having things, you still have to have the discussion. You still have to be willing to make the plan. [00:17:00]

Michael: You said running out of money is not good in your world. It’s pretty bad in our world too.

Brad: Yeah, weird.

Jessica: Yeah. No, I don’t think that’s anybody’s goal, really.

Michael: What’s interesting too, and I’d love to hear you expand on this a little bit, is that people don’t realize what a stress fast growth is on cash and how it can really derail a business. And I’d just love your thoughts on that particular point.

Jessica: Well, if a business plans to grow fast, they need to all understand that that is the plan. So that’s part of where we start our conversations. What’s your vision? Where do you want to be in 10 years? What’s your goal here? What are you trying to do? Where do you want to be in three years? Okay. Now let’s take it back. Where do we want to be in the next year? If we want to get to here in 10 years, let’s map out what that looks like over the next 12 months. And then we can really think there, even if your revenue is hard to [00:18:00] predict, but let’s start somewhere. How many patients are coming through your door? How many procedures are you going to do? What are you going to charge? What’s your pricing? Let’s start somewhere. We have to start somewhere and then we can map out the plans for expansion, or when can I hire people based on that growth. And when can I move into a new space? When can I buy more equipment? When can I expand? And we can map that out, then show the working capital required for that. And you do hear that there’s a high risk of running out of money. You always underestimate the cost of these things. Everyone does. But at least if we’ve thought through it, we have a better estimate and we can build in some cushion, but that’s the thing is we want to understand where are you going? What’s the plan for the next year so that we can make sure we have enough cash to support that. And with these guys, especially when things start to go badly, let’s recognize it quickly because we’re not following the plan. The plan is not happening. Pause, let’s make an adjustment. You’ll get some money, stop spending so quickly. Don’t spiral out of control. When you’re living with [00:19:00] blinders on you can’t pivot when your plan isn’t working.

Brad: Yeah. I was going to say that sounds like a situation where you put everything in together for someone and they fail to take that pause. That pause, I think is really important. Obviously we’ve sat in the room with you a number of times and heard you say similar things, which is: here’s your plan, now tell me, where can we tweak it? And so what are some of the other actions that you see that a client should take?

Jessica: Well, let’s contrast that with clients that are starting their business and they want a clear plan, they want to build that strong foundation. So we have the vision meeting that I described. What’s your plan here? What are you trying to do? Who are you doing it with? How are you going to do it? And then we map out, like I said, the first year. And then what happens, for example, I had a client, who called a couple of weeks ago and said, I want to shift the strategy. And I said, Oh, why do you want [00:20:00] to shift the strategy? And he had some good reasons for shifting the strategy. And I said, okay, well, let’s adjust our revenue expectations based on shifting the strategy. Is this a time when you can shift the strategy? Do you have enough cash reserve to pivot and go a new direction? And we mapped it out and showed that he does have the ability to do that. He can shift the strategy and with the shifting of strategy, he needs to make investments in people and equipment. Can he do that? So we literally mapped out, okay, this month you can buy this piece of equipment. And it’s going to take this many more patients a month to pay for that. Then in three months, let’s buy this one. And at that point, maybe you raise your price to this amount and that’ll cover that piece of equipment. Here’s how I want you to finance it: you also need to be looking for this person to hire because she’s going to be integral to the business. So go do that. So what happens is, as you know, running a business, you got a lot going on, right? You have a lot of moving pieces, a lot of things going, and it’s hard to [00:21:00] identify what’s the focus. But when we’re working with clients who have a clear plan and who are following the plan, we can say, listen, these things over here are going really well. You don’t need to focus on those things right now. Those are working. Instead, take your energy and go do these two things right now. It may shift next month. I may say, okay, that’s done. Now go do this. But at least we’re giving you a little bit of focus. Like we can point out we have a client, for example, in Ohio and her cost structure is amazing. She’s a dentist. Her cost structures is really great. And I tell her, you don’t have to worry about your expenses. They are in line, they’re in great shape. What you need to worry about is bringing your new associate up to speed, making sure she’s got enough patients, making sure her production per patient is where it needs to be. But it allows her to focus. Instead of worrying about all the things, because there’s a lot of things she can worry about, what’s really going to make the impact in the business? That’s to me, hopefully she’s sleeping better at [00:22:00] night. And she’s taking her energy and putting it towards the right things. And she knows exactly what’s happening in her business right now, exactly what the plan is. And I know that it relieves stress because I live with someone who has said I am so glad now that you showed me that I can afford to hire someone, and all I have to do is go find the right person instead of sitting here, stressing out if I can actually afford them. So it’s been kind of interesting now living with a business owner too. He’ll come in, and we had a meeting once where I said, you didn’t meet your revenue goal. Three days later, even I was like, gosh, why are you so cranky? And he said, well, I’m just really depressed from our meeting where you said I didn’t meet my financial goals. I am really, this I’m impacting lives. Good and bad. I need to remember this.

Michael: Oh, that was great. Well we are so grateful to have you on Legal 123s with ByrdAdatto, you as always are so insightful. We’re going to say goodbye and go into a [00:23:00] commercial. And on the other side, Brad and I will share any legal insights from today’s episode. Thank you.

Brad: Thanks Jessica.

Jessica: Thank you, thank you so much.

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Brad: Welcome back to Legal 123s with ByrdAdatto, I’m your host Brad Adatto with my cohost Michael Byrd. Michael, this season, the theme is when should I ask for help? And we were so excited to have Jessica bring us some great points on planning, but based on her thoughts, what are some [00:24:00] areas that our clients fail to properly consider when they do their actual planning phase?

Michael: And what it reminds me of, when listening to Jessica talk about the budget, is on the legal side what closely connected to the idea of doing your business plan or your budget is the seemingly simple formation of your business. And so seemingly simple is that it actually is simple. You can literally go to legal zoom and form an entity and get a tax ID. And you’re often going, you officially have a business, but you may end up like the Hard Rock Hotel in your hometown of New Orleans when you do that, because there are things to think about when you have a business plan, a vision as Jessica was talking about. And let’s say your vision is to sell your business in five years. Well, that impacts potentially the type of [00:25:00] entity that you form. And so sometimes we’re talking about corporations or LLCs. If you’re professional entity, you have compliance considerations that go into making sure you have the right entity and business strategy reasons to do that. It can be impacted by whether you’re raising capital and bringing in investors, or you’re just going to be a solo owner. And then kind of tied to that, the other part of forming a business besides registering it with the state is getting an EIN with the IRS. And there are tax elections to be made that can, and are, dependent on this very vision that Jessica is talking about. There can be a case to be made, to be a C- Corp if you’re going to grow and sell in five years. There can be a case to be made, to be an S- Corp if you’re a small business, and this is going to be your cash flow business until retirement. And then there’s partnership. [00:26:00] Dealing with that on the front end makes life a lot easier on the backend because it is much more difficult to change things down the line. And for some entities, really difficult. And so the more we know on the front end with the budget, we also can kind of dovetail that to the business setup.

Brad: Yeah, I totally agree. And when you’re talking about formations, honestly, one of the things we see clients make mistake all the time as they just form it in some state and not realizing the impact, even though they’ll never be in that state. A form of Delaware entity so I can practice medicine in Texas. Okay, why? And so those are the kinds of things that they just go online, they read it somewhere and that’s why they do it. So that actually can negatively impact them. They have no idea what their exposure is, but as she was talking, we’ve said this before in our speeches, kind of joking saying like 99% of our clients have no [00:27:00] budget or no plan. And it’s probably not true, but it’s how often when we’re sitting there having that same similar conversation on a legal side as to what are they planning to do? They have not gone through that process. They’ve never thought of that. And they just said, you know, that the entrepreneurial brain is go, go, go. Not how you know, her points on the employees, you need the space you need. Or as she said, with that one client of hers where it’s like, get this machine, but you have to hit this goal and patients and revenue before you get this next machine, all those are great steps. And it also kept reminding me of season two of our podcasts. We had Tim Sawyer on and he’s a serial entrepreneur. And he says before he even starts his business, he knows his short and long-term goals of that business and what milestones he has to meet, just to position his business. And in his case, he wants to grow it and sell it. Which, by the way, since we’ve had this podcast, just thinking about Tim, since we had a podcast with him in season two he has sold his business, [00:28:00] which is what he wanted to do. But when you’re in a startup mode, I think what happens is all they want to concentrate is getting someone through their front door and not really thinking about those types of goals. Which then goes back to our Hard Rock Hotel piece, which is, they had a structure in place, but they just kept adding more to it without ever really thinking about is this going to negatively impact our business? Because if you don’t have that solid business plan, it will. Do you have any other takeaways today?

Michael: Yeah. We talk in compliance all the time about how compliance isn’t stagnant. Like, just because you come up and get your business all set up to be compliant that you can just forget about it. And that’s the end of it. The same goes with what Jessica was talking about today, and no better illustration than the global pandemic that hit last year where best laid plans got derailed by something that hadn’t happened in any of our lifetimes. And we were [00:29:00] side-by-side with Jessica, both with our firm and with our clients, seeing the COVID budgets get created. And so many times it’s not as obvious and real as a shutdown that can happen with a pandemic, but you have to constantly be looking at it.

Brad: Absolutely. Well, thanks for joining us and don’t forget, next Wednesday we’ll be discussing the Medical Director Agreement: Fool’s Gold of Compliance.

Outro: Thanks again for joining us today. And remember, if you liked this episode, please subscribe. Make sure to give us a five- star rating and share with your friends. You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com. ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney- client relationship. Reference to any specific product or entity does not constitute an [00:28:00] endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Please consult with an attorney on your legal issues

ByrdAdatto founding partner Brad Adatto

Bradford E. Adatto

Brad decided to become a lawyer during sixth-grade Career Day, when he promised to represent his best friend, a future doctor. A few decades later, he started his own law firm that focused on representing health care and corporate clients.