Zero To A Hundred – Episode 44: Bank Account Blind Spots: Unlock Your Business’s True Financial Health With Colin Barnhart

Zero to a Hundred - Jarrod Guy Randolph | Colin Barnhart | Financial Health

 

Accelerators!🚀

Think your bank account balance tells the whole story? Think again. In this episode, we’re joined by Colin Barnhart, Founder & CEO of Black Ink Business Services, who shares what every founder needs to know about forecasting, clean data, and scaling with confidence. From understanding the difference between fractional vs. full-time CFOs to spotting when your financial system is silently failing—you’ll walk away with real CFO-level insights that can save your business time, money, and massive headaches.

🧠 What’s on the Menu:

When to bring in a fractional CFO (and what that really means)

Why your bank account can’t be your only metric

How to clean up messy financials before it costs you

Forecasting tools to grow responsibly

Knowing when to distribute capital—and when to reinvest

💬 🗣️ Gem from Colin:

“The bank account can hide mistakes—clean data and forecasting are your real safety nets.”

📍 Get in Touch with Colin:

🌐 blackinkservices.com

📧 Find him on LinkedIn

Subscribe, share, and drop a comment if you’re ready to scale with confidence.

From Zero to A Hundred—let’s go! 💥

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Bank Account Blind Spots: Unlock Your Business’s True Financial Health With Colin Barnhart

I’m very excited to welcome our guest, Colin Barnhart, who is the Founder and CEO of Black Ink Business Services. They do everything from managing your finances to HR through compliance for businesses. They work with businesses from launch to exit and they become your back office, so you, as founders, can focus on scaling your businesses.

We’re going to cover some great topics that I want you all to tune into. We’re going to focus on improving your financial forecasting with the difference between a CFO who is interim, fractional and full-time and what you should expect for them, how to take and when to take capital distributions, and most importantly, how to have good financial hygiene for your business.

For those of you who do not know me, my name is Jarrod Guy Randolph, and I’m the founder of BoxFi. We are the nation’s leading payment processing consultant, providing business growth solutions through payment processing. I’m excited to share the network that I’ve built over my 25-year entrepreneurial journey to help you grow your business and become more profitable. Ladies and gentlemen, let’s accelerate together.

 

Zero to a Hundred - Jarrod Guy Randolph | Colin Barnhart | Financial Health

 

Colin Barnhart, thank you for joining us. How are you, my friend?

I’m good, thank you, Jarrod.

All right. Tell us what is good. Our audience is entrepreneurs and business owners. Tell us more about your business and your philosophy on management.

Sure. Black Ink Business Services was founded in 2007, which is quite the milestone that makes me feel old. The best way to think of us in a short elevator pitch is that we’re an outsourced back office taking care of all your managerial accounting needs. Everything from day-to-day bookkeeping all through fractional CFO work, as well as some project one-off work as well.

In the majority of our engagements, we are open-ended. We work with our clients for as long as they need us. Managerial style, I think the main thing that we lean into is integration and that’s both within our own team as well as working with our clients. We become integrated within their team and with our team and make sure that we’re leaning on each other’s core competencies and complementing each other’s weaknesses. That is like the ethos of what we’re trying to pull off, which is to support our client with what we do best and also internally support each other with what we do best.

One of the things, when we spoke originally, I think you told me that your average client has been with you for six years. Is that correct?

That is correct.

How do you integrate that management style that you have with the culture of that company so you do work seamlessly? I would think that bringing in an outside service provider is always challenging because they might not fit in with the company culture. How do you do that, build a relationship over the long-term with the businesses that you work with?

I think the core common denominator there is we work with good people. They help that process. They see that that is a lasting part of the engagement and they want it to happen as much as we want it to happen. They don’t treat us like a black box over here that we just feed information to into and we get it back. They want us to be part of the team, and from the very beginning, talks of a potential engagement. We present it that way.

The groundwork is laid from day one that in order for us to be as successful as we want us to be, this is the way we work together. It goes beyond that. I think that one thing we do is we introduce the whole team top to bottom, from staff accountants through CFOs to our clients and to the relevant team members on their side so that they put a face with a name.

I think that’s the most simple human thing you can do. In this day and age, where it’s less in person and more in this environment, cameras on. Get to know each other as best you can in this environment and I think that trickles down really quickly. It also humanizes people and makes everyone realize that they’re working with other people.

Yeah, I 100% agree with you and I think one of your challenges, as we’ve discussed this before, is getting to all the Christmas parties.

You know what’s great? More so my team than me. I get invited to less and less every year and they get invited to more and more, which I’m totally happy with.

Spotting Early Financial Warning Signs

Let’s talk about spotting the early signs, like you work with a lot of business owners that are getting to a point of growth where they’re outpacing their current financial structure. What are some of the signs that you have or I have as a business owner that should be like the red flags to say, “Something’s wrong here. We’ve got to fix this and you have to have put the right team in place?”

First thing first, trust your intuition. If you’re feeling nervous or you’re not getting the information the way you need it or when you need it, that’s that gut feeling. Ninety-nine percent of the time, for better or worse, your gut is right and you should trust it. The table stakes of it is if you ever find yourself in a cash crunch you didn’t see coming, you ever are looking at your profitability and you lost money or made less money than you thought you did, that’s when you pump the brakes and say, “Something’s not connecting here and we need to figure it out.” That’s when you need to take a top to bottom look at what is going on in the background of your business.

If you ever hit a cash crunch you didn’t see coming or realize you made less profit than expected, it’s time to pause and figure out what’s not connecting. Share on X

Proactive Forecasting & Avoiding Cash Crushes

When you say cash crunch, what does that mean for a business owner and how do you avoid even getting to that point of having the cash crunch?

I’m going to answer that question backwards. Forecasting is the first thing. You need to have a good forecasting system and for each business that can be different for an eCommerce business that’s a lot different than a professional service business. The baseline is that you need to have some confidence in your forward-looking numbers and your receivables of when it’s coming in.

From that, the cash crunch can look a couple of different ways for a couple of different companies. The scariest one is that you wake up one day, you think that enough receivables are coming in to cover payroll and they don’t show up one day. That’s where you need to figure out how to build a bridge really quickly. That could be a line of credit or a shareholder loan or whatever that may look like. That’s a really unfun because that’s a reactive position that, as a business owner, you want to avoid at all costs.

A more proactive way is that let’s say that you typically have three months’ worth of working capital or six months’ worth of working capital in your business with good forecasting and some methodology behind it that everyone agrees to and big reality checks of when things are actually going to happen. You should be able to see that the distance between you and that day that it’s always getting pushed out is getting shorter and shorter.

That’s where good forecasting and good business intelligence can say, “What do we do now? How do we be proactive about bridging this gap?” I use the analogy a lot of building a bridge in cash crunch. The reason I use that analogy is to make sure that my clients don’t bridge to nowhere. We’ve got to know is it just receivables, is just a seasonality thing, what’s going on? You never want to put yourself in a position where you have to put good money after bad, either.

Would you say that forecasting is looking backwards of what you’ve achieved in prior quarters and projecting forward based on that forecast what you’ve done in prior quarters?

The art of that is marrying that with your new business. You need to be able to say, “Here’s historically what we’ve done. Here’s what we know we have, here’s our committed revenue.” This is where the art comes into play and you need to be talking to different stakeholders within our organization. Your salespeople are going to be different than your ops people and your ops people are different than your senior management.

There’s usually a reality check between all of them of what we want to bring into the forecast and that’s the confidence of these forward-looking data projects that you might be selling into new SKUs. If you’re a product-level person, what’s going to actually happen in that world. You can have a sales goal, which is a type of forecasting, but that informs but should not also be your cash forecasting as well.

I look at it in terms of our business and the payment processing side. All our business is referrals and our referrals come through our channel partners that we have and we can project basically the number of channel partners that we sign on, how many client referrals we will get moving forward. Let’s say we’ve got 100 channel partners and we add 10 channel partners on a monthly basis, for each channel partner, we know we’re going to close two more clients. Each channel partner is new.

We have a trajectory based on 3 months, 6 months, 9 months, 12 months and beyond. That has helped us in terms of tracking. I find that some businesses struggle with that, but there are some businesses that are great. We spend X amount in ad revenue, we know we’re going to get X return in terms of clients, but marrying the two of those, that’s a very interesting balance that it’s important for businesses to have someone. If they don’t know how to do it, if they’re not an expert, have someone like your company help them create those projections.

 

Zero to a Hundred - Jarrod Guy Randolph | Colin Barnhart | Financial Health

 

I think to dovetail off that validation, you need to be constantly validating that. To use your example, that can change. Especially with the economic environment that we have going on right now, what your deal to cash, if you will, cycle can change drastically with outside forces. What is typical nowadays can be atypical tomorrow. We have definitely seen that as of late and we need to bake that into some of our forecasting as well.

Let’s talk about when the system breaks. What I mean by that is when you have operators of a business that might have shadow books because they’re not necessarily confident that the books their team are currently producing, how do you deal with that and why does that happen?

It usually happens over a period of time. It’s usually that eroding confidence and the numbers that owner, founder, stakeholder, whatever, that’s responsible for that is having. They’re having to start off doing it themselves and they might be getting informed by their finance team but they’re not getting it from the finance team or they’re getting data in a way that they don’t consume it. That’s also a common thing.

Not everyone’s a finance person. Put a P&L balance sheet in front of someone, even if it’s forward-looking, it could just be a stale piece of the document they can’t conceptualize around. What we do is we try to get in there and understand why they’re doing it and what they’re actually looking at. That’s one of the things I, very early on in engagement, say. It’s like, “Show me why you do it this way. Let me understand it.”

There are some basic things that we want to do with all clients, of course. Compliance is compliance and tax is tax, but around business intelligence, I’m like, “How do you want to see it? What informs a business decision for you? Is it shapes and colors or is it percentages and lines? We want to speak to our client in a way that they’re going to consume that information.

A lot of times, that happens or they’ve outgrown their current team. Their current team could be just, to no fault of their own, a part-time bookkeeper that comes in once a week or once a month and is always being an after the fact capture of data and their after fact bookkeeping is now becoming a problem because they need information now. They’re unable to get it and they need to grow that part of their business.

Shifting From After-The-Fact Bookkeeping To Real-Time Financial Management

At what time in terms of your sales or your growth velocity, should you have a finance team that is in place that is no longer after the fact? I love that you said that because a lot of businesses, and I was at this point in my business a few years ago, you’d come in and you look at everything after it happened, whether it was the quarter or whatever. How do you put yourself in the position or what is that benchmark that you hit that now you need to have a team in place that truly is forward-looking, not just looking in the past.

Yeah, the benchmark’s not a number. It’s unfortunately a feeling, which is, “I feel like I can’t make a decision as fast as I need to make the decision.” If you’re a business owner or founder, you’ve felt that feeling at some point in time where there’s an answer to a question and I might not even know the question but I feel it.

Going back to what you were saying, like what is that gut intuition? It’s that moment in time and then taking a step back from your own business and saying, “When I was so close to it, maybe because it was smaller, maybe it was less complicated, I can make these gut decisions that I now don’t trust because I need data to back.” That’s another like good tell that something else is happening there where you need a little bit more real time decisions.

Also, as a founder, present company included, in the early days, I was so close to every single client that I knew what was going on. I had a team but I knew what was going on over here and over there. Now I’ve built a great team around me, but I have twice weekly management team standups where we go through the list, “Is there a problem here is I need to be deployable over here to help something out, someone out over here or something like that?” That’s that team atmosphere as well. When the stakeholder or founder’s own bandwidth is getting in the way of their own work, that’s a problem.

Really, it’s a finite balance and everyone has to get into alignment with what the goals are of the company, what the people’s positions are.

Yeah. Especially in a partnership, you might have a partner who’s super creative out there with sales is like the visionary and you might have another partner who’s more strategic and analytical so they might be supplementing some of that need in that real time as well. That happens all the time. We work well with those partners.

I love having them because I have someone who’s going to easy to onboard and understand and they’re going to be able to gimme direction where if I just have that creative salesperson over here. Sometimes I go to reign them in and teach them some basics or force their bubble a little bit. I love having that strategic analytical partner who’s like, “Just give me the facts.” I’m like, “Okay, great. I speak your language. Let’s do that.”

What type of businesses just in general do you work with? Is there a specific industry or sector? Are you all over the place? I think that’s going to inform our audience how you look at adding value from your services within their companies.

Yeah, I think we are industry agnostic. That doesn’t mean that we’re the Swiss Army knife of solutions for everyone by any means. I think that the common thread has been that, one, we like to work with clients who value what we propose. That’s a good common denominator because we’re selling into people that like what we do and have seen it and like you, we have built a lot of referrals through the way we get our clients. That’s a great way capture people, a lot of confidence.

I would say there are two common denominators across all of our clients. One is we are really good at project level work and thinking of things in project. Projects can be, we have architecture firms that are building buildings over the course of many years. We have a lot of creative agency people who are doing more shorter sprint creative.

That could be everything from something that’s experiential like a museum. It’s like part of a museum to building an app or a website, something that has a beginning, middle and end or several beginning,s middles and ends. We’re really good working with those clients, helping them think about how they’re making money and how they’re selling their business and going through that.

The other fun one, which I really do enjoy being, is pre-revenue startups because you get to be with them on day one. You get to help them build those systems. You get to help them scale their systems. Sometimes, they start off needing something little and then all of a sudden, it’s a ton of fun to ride that way. I had fun and stressful, but we learn a lot through that process. We get to learn about something completely different than we’ve ever done before because usually, those people are doing something different than anyone’s done before.

How do you know, when you’re in that position as a business owner for that type of industry or any industry, how to select the right financial leadership team, whether that is a fractional CFO, an interim CFO? What is the difference between the two and how do you go about picking the right solution for your business?

A lot of it is the current need level. I put cfos into two different buckets and this actually speaks to that fractional versus interim. We refer to ourself as fractional cfos and not all of our clients are utilizing that service, but a good number are, and that means that we have a bench of people, myself included, that are deployable into our clients’ accounts for certain needs.

Usually, it’s a little bit more of the technical side of that CFO role. It’s helping think through reporting, it’s helping think through some business modeling alongside the clients. That’s where we add a lot of value. An interim CFO or just a CFO, a lot of times, they’re a little less technical. They’re more subject matter experts on that particular business, which sometimes we are and sometimes we aren’t.

We can be a technical CFO and not be an expert at your business. Fractional can become interim and then interim can become full. There’s a bleed between these, between this process. An interim is usually, “I need a person for this particular thing,” fundraising, subject matter expert in what I do. They can sit in the room with procurement, they can be in that role. As the interim CFO role grows, it usually becomes a full-time CFO.

We have plenty of clients that are $50 million to $100 million in revenue and probably never need a CFO. They need a director of finance. They need someone who can do some of that procurement. They need someone like us to help supplement them on the technical side. There might be some other partners that are supplementing some of those competencies that might be needed by that. The needs shift and we’re the first ones to go to our clients and say, “It’s time to bring some of this in-house or it’s just fiscally responsible now that you’ve grown to the scale to bring some of this in-house and let’s figure out how to rebuild that team alongside you.”

It’s interesting. You said some of the businesses you work with are doing $100 million, $150 million in top line revenue, but they don’t need a CFO. If you are a business owner and you’re getting to a point of scale, what is the true function of a CFO? If it’s not just a benchmark of what your revenue is, why do you hire them and what are they supposed to do for you, from a full-time standpoint?

Full-time CFO should have some level of ownership over the P&L, over what drives profit and expenses. They should have a level of ownership over that process. That means there might be a dotted line or a direct line in management to some of the revenue officers or salespeople or people that are forecasting that. They should be not just informing the rest of management team, they’re part of that team. They’re pulling levelers and pushing buttons. That is that level. That is not just someone who is gathering information, giving opinions, doing those other things. That is someone who owns part of the P&L.

Financial Hygiene For Hypergrowth & Exit Planning

If you are at a point in your business where you’re getting to some hyper growth, what are some of the challenges that you should be aware of and get ahead of before they become problems in your financial management?

Forecasting. It’s going to sound so generic, I know, but it really is forecasting, especially hyper-growth, because we’ve been there plenty of times. We need to be really careful that we are projecting out revenue as well. A lot of times in our world, some of the biggest expense are either cogs and inventory or people. The people who are servicing that revenue. You need to have a really clear understanding of what your inventory and your people utilization are and make sure you do not get ahead of yourself.

That’s a dangerous area where you can rev too high and there is a small mistake made or miscalculation or whatever may happen that that hits your world that’s outside of your control or was outside of your purview and you are now over your skis and that’s what you want to make sure you’re avoiding at all times.

If you are in service base or even product base, having a really clear understanding of accrual accounting because if you’re running your business off cash accounting and that hypergrowth scenario, your bank account can hide a lot of your own mistakes because you’re flush with cash. What you may not realize until it’s too late is that cash is not money you’re making now. It’s money you already made.

 

Zero to a Hundred - Jarrod Guy Randolph | Colin Barnhart | Financial Health

 

By the time you realize that you have a situation where you’re less profitable than you think you are, the red light, yellow light, green light of the bank balance is gone because you have hyper growth. Your revenue’s coming in, money’s going out and you lose track of the fact that you are actually depleting capital.

The bank account might still continue to grow but you’re still spending at a different pace. There’s a false sense of security that if you’re running your business off cash, that’s it. Accrual accounting is something that we do nearly on day one with 90% of our clients. It is to make sure we understand not just how cash comes in and out, but also how they’re earning their revenue and how we recognize both their income and their expense.

You said something very interesting. Your bank account can hide mistakes. What are some of the mistakes that you see when they’re based off of cash accounting?

Margin pinch. They don’t realize their true margin and it’s regardless of the business fine, they are growing really quick. They see their bank account, they also tell themselves that money they’re spending as an investment, whether that be in inventory or in people and they lose track of what the true margin is of their business.

If a business is growing or contracting, as long as you’re recognizing revenue and expenses and you are looking at your income statement and your for passive looking income statement and you’re trending up in profitability, you’re going to be okay. If you have a cash crunch, maybe it’s a receivables issue. Maybe it’s that you need to outlay some capital for inventory that’s already secured. That’s a fine reason. That’s a good reason to draw down on that line of credit because you know when you’re going to repay it because you have it forecasted out and you know your margins are healthy cash accounting, it’s really difficult to be able to actually point your finger at that and say here’s what’s going on.

Whether your business is growing or contracting, as long as you’re recognizing revenue and expenses, reviewing your income statement, and trending toward profitability, you’re going to be okay. Share on X

Give me an example of a client that you’ve worked with where they were having challenges with their margin and how you came in and fixed it.

Yeah, the early days of COVID, this was a really interesting one. We were working with a good number of agencies already and we, all of a sudden, got a bunch of inbound referrals coming in because a lot of people were facing the same problem, which was they, all of a sudden, felt this cash crunch and this is in the second half of the pandemic where what had happened was salaries had had gone up.

At the same time, they were busy. Everyone was really busy at that time in that space in the advertising space. Everyone’s working fully remote, everyone’s head sounds, everyone feels like they’re highly utilized but salaries went up the market, maybe or maybe not, could have tolerated an increase in price, but they never went back and visited their bill rates and all of a sudden, a little bit of slowdown. Utilization came down, compensation was up and they hadn’t raised their bill rates.

We came in and one of the first things we did with a lot of those clients is just go through a bill rate exercise and bill rates are just like what are you selling your services for? Same with product, it works the same way. It’s just like this isn’t rocket science. Let’s sit down, do the math, figure out how much time people are actually spending on this.

People hate this word but time sheets are really great for this. Even they’re B-plus time sheets, I’ll take them over nothing because I can see where people are spending their time as a whole at a 10,000-foot level and say, “What is the utilization here? Is everyone really burning as hot as they say they are or are they all just working a lot and maybe overservicing a client? Have you sold those hours that they’re working?”

That happens all the time. We were able to do a pretty big reset and that process, we were also able to identify what I refer to as hollow revenue. It’s revenue that that was already committed but they had either undersold it or over serviced it already and they’d already used up their budget. We had to get it out of the system.

The nice thing about that is, even though it’s a problem and it’s really unfun, but we can say, “We’ve identified the problem. If you were to fix this problem retroactively, here’s the margins you would be hitting. Yeah, it sucks right now, but the business model’s not broken. We know what it would look like if we could fix it and we just need to get through this process and we’re going to fix it.”

That’s what happened. We watch clients go from single-digit EBITDA percentages up into the twenties and feeling healthy and feeling good again. We’re able to ride that wave and it was a very rewarding time. It’s something that we still do day in and day out when we get a new client. A catalyst for us getting clients, as you said earlier, is that someone feels like something’s wrong, us digging into the numbers and figuring it out. It’s only a couple of things that can be wrong in a business. It’s not that hard. It’s just making sure you were looking at the right things.

There’s something that you touched on that was very interesting and you talked about the bill rate, so the product or service, what you’re charging for it now versus 12 months ago, 12 years ago. Is there a formula that business owners should be looking at periodically to reassess what they’re charging for their product or service?

On the product side, you’ve got your balm and you’ve got what you’re selling it for. Just staying so close to that number and making sure what your markup is and what the market would tolerate and then backing that into your full P&L so that you have your below-the-line “non-cost” and good expenses worked into that number so you know what you need to sell to be profitable. Selling people’s time is not that different.

The problem with selling people’s time is usually there’s a mix of people that were hired at different times at slightly different rates, maybe selling their services at the same time or you’re bidding it out at the same time, making sure you’re being honest with yourself of what that number is and how many hours you expect that person to really work in a week. That level of honesty with a little dose of pessimism is a good approach.

How would you feel if a company set, no matter what we sell for our product, we want to make a 20% margin? Everything that they do from negotiating the widgets that help them create that product to what they’re paying their employees to their marketing cost, their shipping cost, etc., inflation, they’re backing into that 20% margin. Do you think that is a way in which a business can look at making sure they’re getting to the right margin?

Yes, especially in the service industry with that as well, because both product and service, what I like to, and we use a different nomenclature for different clients to speak their language, as I mentioned earlier, we really want to come to them with a way they think about it, but I think about it as an overall company capacity.

This is like going usually back to like, “Let’s go back to that business model that you scratched out the first time when you started this business.” It’s like, “If we did everything right, how much money would we be making?” Start there. To your point, if that number needs to start at 20%, which is a good place to start, what does that look like? What hurdles do you run into that? It’s a good litmus test. You’re like, “That’s impossible to do because of X, Y, and Z.” “Okay, why is it impossible?” “It’s because we can’t sell it for that much.” “Okay, then let’s stop there, work on that and then come back to that one.” “We pay our people too much.” “Okay, well do you have too many people? Is there some hard conversations that need to happen and working back from that?” I love that idea. It’s revisiting your original business plan, if you will.

Protecting Your Downside: Lines Of Credit & Cash Reserves

If you are a business owner and you want to pad your company or protect your downside, what should you have in place in terms of your cash on hand lines of credit equity, whatever it may be. How do you create the right mix for a business to make sure that if things, products, sales, service requests go down or the cost of goods go up and you can’t exponentially increase your prices right away, how do you pad yourself or protect yourself from those type of things? Is there a specific equation you like to use to make sure they have enough money to combat against that?

First thing, I’ve never met a business that shouldn’t have a line of credit. I have seen them misused. I have seen them called and become term loans because they were kept out too long. There’s hygiene around using debt in a business and you need to set up some ground rules for yourself and your partners around how you use that debt, but there is no business that shouldn’t have a line of credit.

That should be the first line of defense of whatever it may be to get you through a rough patch. Again, the idea is to get you through, it could be a crunch on receivables, it could be a natural disaster, it could be one of a million different things where you just need a moment in time to catch yourself up or make a very short-term investment in something you didn’t see. Something occurs.

The second line, this is like personal finances, you need that rainy day fund. You need a contingency fund within your own business and I use that number as months because months change. As your business grows or potentially contracts, the number of months of runway until you “run out” of cash and that dollar number can change but the months should be the metric.

I think time is always the metric because time is going to stay constant. A $1 million business needing 3 months’ worth of cash runway versus a $10 million business needing 3 months’ worth of cash runway, that’s a very different dollar number. Those might be the same businesses that are three years later and we still keep that metric.

Once we figure out that comfortable metric, this is where the fun part comes in, by the way, the best conversation I can make is like, “We typically feel comfortable in your business because of how quick your sales cycle is and how cash comes in and out of the business. We usually feel good at 180 days or 90 days. We’ve been running above that now for three months. Guess what? Time to take a capital distribution.” That’s a fun phone call.

Partners love that phone call. “Here’s some retained earnings that we’re going to send. Where would you like us to send this money? You have too much capital in your business.” However, if you’re not tracking against that, you also then, especially between a partnership, that conversation feels very unstructured of when to take money out. That becomes part of that conversation. When do we have too much capital in the business? There can be too much capital in a business. It should be deployed into the shareholders’ lives. That’s the whole point.

I want to ask a general term and then you said something that I think is important for us to cover, which we are going to cover in terms of capital distributions. Is there a bare minimum? Is 90 days is like the bare minimum of what you should have on reserves for your financial hygiene, as you called it?

Put me in a corner. What is the number? I would say two months’ worth of payroll. That’s the basic. If I’m walking down the street and someone just says, “Give me this one thing,” I’d say I give them all the reasons why it’s not that simple but I would tell them that that’s the bare minimum.

Financial Independence For Business Owners & Exit Strategy

That’s really important. Let’s go to cash distributions. To our audience of entrepreneurs and business owners, when can you start to take money out of the business for your own personal distribution?

When that cash runway is high enough and you’re confident enough and you’re forecasting that you have more money in the bank than the business needs. There are a lot of reasons to talk about that. Do we want to make an investment? There’s a lot of forward-looking part of that conversation, but consistency is the main thing.

I am resistant on a new client advocating for capital distribution until we’ve gotten through 12 months and a trailing 12 months’ worth of data so that we can understand a little bit more about what cycles happen, what doesn’t happen, and a little bit of the attitude around that. If it’s a sole owner-founder, it’s a little easier conversation than with partners. Partners have different lives and different needs and some of them might be in different financial positions, so you’ve got to speak to that.

The other key thing that touches into that, you should be paying yourself enough. You should be paying yourself enough that a profit distribution is not money that you need to live off of. That money should be going to further your financial security as an individual, deleverage yourself from being a business owner, which we all are, and know what it feels like to be over leveraged in our own business. That’s the goal.

You should be paying yourself enough so that profit distributions aren't for living, but for building your individual financial security and de-leveraging yourself from the business. That's the ultimate goal. Share on X

If you are needing that to meet your basic living needs, your salary’s too low, which means you’re lying to yourself on your P&L too about your profitability. Let’s fix that first. Let’s make enough money to pay yourself, what you should be paid as close to market as possible and hopefully someday above market, and then we can start talking about what profit really is.

Why in today’s date is there still a stigma around entrepreneurs or business owners paying themselves proper rates?

By the way, I’ll just go and say, go ahead and say people who work for nonprofits too while we’re at it because I feel the same way. I think it’s the early days, you feel like you need to be sacrificing, you feel like you need to be putting 100% into your business. In the early days, I got that, especially in my youth when I had less responsibilities in my life. I could do a lot more with a lot less than I can now and I wanted to.

There’s also a realization as you grow older and you become more mature as a business person, you’re a different human than you are back then. I think that stigma comes around this hustling, putting everything back into it until you hit this other number. I take the other side of that equation, which is, when you can de-risk yourself from your own business, you’re going to make smarter decisions based on that decision.

You also can say, “I’m going to leave all the profits for the next year in the business and then I’m going to have these new initiatives where I’m going to go spend an extra $200,000 to get to the next run of the ladder.” That’s a lot easier conversation for you to have with yourself, your spouse, whoever else, responsibilities you have in your life if you’ve done that, if you’ve gotten to a place where you can be responsible with yourself around that.

In our last bit of this episode, which you’ve been an incredible guest so far, always great answers, let’s talk about somebody who has a business that has scaled but they’re potentially looking for an exit or to at least have an end point. What are some of the financial parameters that you should start building if you’re looking to scale and exit your business in let’s say a three-year period?

First thing is, in your industry, how are valuations working historically and now? Right now, it’s a little bit of a weird market, but historically it’s earnings multiplier of EBITDA or combination of that and revenue. Look at your peers. How is that valuation work for them? Take a step back and say, “How much money do I need to exit?”

That’s a real honest conversation with yourself. You say, “I need $5 million.” Okay, and you own 100% of the business. Okay, alright, let’s just do some easy math. You’re going to need to sell your business for $10 million for you to walk away with $5 million. I like to boil it down to like what needs to be in your bank account when it’s all said and done and dusted for you to feel like this is the exit I want to do.

We back into that. We say, “Here’s the way valuations are working,” and we start working into that and then that informs the business model. Okay, for the next, if you say three years, what is it going to take to get to that number, to that valuation that is your goal and what’s your EBITDA and what’s your multiplier so you look good to a potential buyer and start working through that?

At the same time, once we get close to that being on the horizon, at least 12 or 18 months away, we need to make sure that we’re doing some pre-diligence. Let’s start building a data room. We know what’s going to be asked of you once you sign that LOI, we know what’s going to happen when we’re in the room. The more prepared we are for that transaction and those requests, the quicker we’re going to be able to respond.

If you’re Johnny on the spot in that due diligence conversation, you are going to take a lot of the wind out of the ability for someone to negotiate against you. You never want to be negotiating against yourself. Your LOI has some basic information about how you’re going to value the company, what the deal looks like. Is it cash, is it equity, is it mixture of both? Is there an earnout? All those things are spelled out.

When you’re in due diligence, if there are delays or let me reshow you something or restate something, you’re just giving someone wonderful leverage on you. We want to start thinking that way early on and making sure that everything’s tight. A lot of times, early in our engagement, if someone were to come to us like that, we do a pretty deep dive on the balance sheet. That’s usually where mistakes are hidden.

It’s not in the P&L, typically, but the balance sheet, they either have some stale inventory that’s been sitting on there forever. Take the hit now. Let’s take that hit, let’s take the tax write off, let’s get it out of the system year 1, so that year 3, when they’re looking back at 2 years of data, you don’t have this giant asterisk of like, “Why did you lose money in this quarter?” “We had all this inventory that’d been sitting on the balance sheet forever that we should have written off because it’s never going to be sold or was never counted right,” or whatever it is. Clean that up. Take your licks, take your medicine, move on. Have a good foundation.

What do you do with account receivable? I’ve seen this happen actually with some friends of mine who have sold their companies where the accounts receivable didn’t perform or they didn’t collect on them, the individuals that they sold the companies to, and then they came back and tried to renegotiate their payouts. How do you deal with something like getting ahead of making sure your accounts receivables are buttoned up?

There are two sides to that. One is in the deal itself. Make sure that we’re thinking through and your advisors are thinking through the working capital calculations and how you’re holding money in reserves. When you sell the business, that’s where that’s going to live. It’s in your working capital at the moment of sell.

Just 101, when you sell the business, there’s this line in the sand that we need to figure out what money is the businesses prior to the sell and after. There’s a cleanup down the line that we do that. Make sure that you have negotiated that in a fair but healthy way in your own interest. You’re not leaving too much risk out there.

The other thing is earlier on, identify risky AR. You typically know the ones that you’re not collecting on. If you’re accrual tax filer, which most businesses should get to as quick as they can, I would rather take that write-off now of something that’s uncollectible. If it’s collected in the future, you can then recognize it. Now that’s when you’re approaching a sale, you need to be a little bit more careful about writing off that bad debt. Earlier on in the business cycle, there’s nothing wrong with writing that down. You’re just lying to yourself. If you’re leaving it on AR anyway. Take the hit, get the tax benefit of it now. If it happens to come in two years from now, we’ll recognize the income there. That is completely appropriate.

Making Yourself Irrelevant For Business Sale

That is sage wisdom. Alright, Colin, so the last question before we get into our rapid fire section is, if you are a business that is at that point of exit, I think this is really important and it’s some advice that a very good friend of mine gave me, how do you financially, beyond just the operations of the business, make yourself irrelevant to the business when you’re trying to sell to someone?

Especially in my business, there’s a reason why my name is not in the business name. First off, to make sure my own ego isn’t too tied in my own business. Two, so they can live on without me. I think that as you grow, surround yourself with managers who are better at the business than you. They might have different core competencies, but you’re not necessarily trying to replace yourself every day. You want to be important, you want to show up to work and you want to be valued.

The nuts and bolts of the business, the table stake side of your business should not be dependable solely on you. It needs to be able to run while you’re on vacation. By the way, it’s a great feeling when you get there. Sometimes people hold some parts of their business a little too dearly because they say, “I own this. I need to be a part of this.” That’s a fallacy. You need to get beyond that.

As you grow, surround yourself with managers better than you. While you want to be valued, the nuts and bolts of the business should not be solely dependent on your daily presence. Share on X

The value of the business is the business itself. It’s not your contribution solely to it and making sure that the whole sales cycle from revenue through can’t exist without you. It doesn’t mean you’re not adding value. It doesn’t mean you’re not an important part of it, but it’s got to be able to exist without you in the mix.

Alright, my friend, time for the rapid fire section. Are you ready?

I guess I am. Let’s go.

Coffee or tea?

Coffee.

Who wins the race, the rabbit or the turtle?

Rabbit, only because I used to have rabbits.

We’ve got a lot to talk about. I did too.

Yeah, there’s a whole story behind that. I did not intentionally go buy a rabbit. One found me, which is a fun story.

If there is a zombie apocalypse, you have to get out of your home and protect your family, what will be your weapon of choice?

My weapon of choice is a big, heavy, fast car.

Do you have a favorite quote that you think about often in business?

Two. Luck is a residue of design. I don’t know where that came from, but it was framed in my kitchen by my father and it lived there and I think it might still be in one of his kitchens somewhere. The second is, let me try not to butcher this quote, and I am paraphrasing it. You can Google who actually said this. It was some military genius. No battle was ever won without a plan. No battle was ever won according to plan.

That one’s good. I love it. Be nimble, baby. Be nimble. Do you have a coach or mentor?

I have no formal coach and I have a lot of informal mentors.

Dead or alive, if you could have dinner with anyone this evening, who would it be and why?

My grandmother. She’s dead, by the way. She was a very interesting woman and I have a lot more questions to ask her that I’d never gotten a chance to get the answers to.

In 2025, in the second half, are there any techniques for saving capital and protecting your downside in your business that you would give the audience?

You are pulling parts of meetings I’ve had over the last couple of weeks. Be really realistic with yourself about what the differences this year versus last year on when money’s going to come through the door, when revenue is secure, and when those projects are actually closed. Be really honest with yourself because I’m seeing timelines get pushed. I’m seeing sales cycles take longer and in order to do that, you need to be really honest with yourself and there’s probably some tough decisions about how to preserve that capital and how not to spend it, is what that means.

The last question, my friend, what is the biggest obstacle that you had to overcome personally to build the success that you have now?

My combination of OCD as well as my tendency to procrastinate, which is an odd thing to be combined, but they obviously are. I had to learn how to work through imperfection with my OCD because I would stop and try to fix the penny and not deal with the dollar, especially in my world. That doesn’t mean that exact doesn’t matter to me, but I sometimes would get obsessed with the little stuff instead of taking a step back and say, “What do I really need to be concentrating on?” Procrastination, the other side of that coin, is figuring out for myself how to deal with my own workflow.

You’ve built something that’s very successful with many years in business. Congratulations, my friend. Colin, please tell the audience where they could reach you if they would like to do so.

Black Ink Business Services. We have offices in New York and in Austin if you want to come visit us in real life or find us on the interwebs at BlackInkServices.com. Colin Barnhart on LinkedIn. You’ll find this bald face there. Connect with me. Reach out. I reply to every single email.

Colin Barnhart, thank you for joining us.

Thank you. I appreciate it.

 

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About Colin Barnhart

Zero to a Hundred - Jarrod Guy Randolph | Colin Barnhart | Financial HealthAfter attending Texas Tech University, Colin started working as a retail stockbroker on Wall Street. After gaining valuable financial and Wall Street experience, he transitioned away from the retail side of the stock market to managed funds. While working on Wall Street he continued to explore private opportunities more in line with his entrepreneurial spirit and passion for business operations.

After a few years on Wall Street, he joined a group of entrepreneurs in New York City as an Operations Manager during the expansion of a nightclub and hospitality group. In addition to handling all the daily operating tasks for the business, Colin played an integral role in expanding the business. His involvement included a wide scope of responsibilities from preparing business plans, to scoping budgets, to setting-up financial and legal operating systems. Within a year of joining, two additional businesses opened in Florida. Colin found significant success in this position and quickly became the Chief Operations Officer for all three of the year-round businesses, as well as overseeing the finances for a seasonal operation in the Hamptons.

By 2006 Colin was involved in several New York partnerships that focused on various aspects of the hospitality and music industries. As Managing Partner, he oversaw all financial and legal obligations of businesses operations. In these roles, he was often tapped by other business owners for support and advice on establishing financial systems and controls. Colin quickly took note that the financial services industry wasn’t meeting these founders’ needs. With this point of view, it was in 2007 that Black Ink Business Services began meeting the needs of founders launching and growing businesses.