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The Dead Pixels Society podcast
Unlocking Business Growth with a Fractional CFO: Insights from Stewart Ervin
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Unlock the secrets of strategic financial guidance for small businesses with Stewart Ervin, the fractional CFO from Bracket Management, who is redefining how businesses can thrive without a full-time CFO. This episode promises to demystify how fractional CFOs empower small enterprises to break through growth barriers, regain financial control, and prepare for pivotal transitions such as mergers or sales. Ervin shares his fascinating journey from taking the reins of a family business to excelling in corporate roles and mastering the art of business turnarounds. Explore the critical distinctions between a fractional CFO and a CPA, focusing on the strategic foresight a CFO brings to accelerate business success.
We navigate the intricacies of financial analysis and operational strategy, particularly for family-run enterprises, with insights into analyzing financial data to uncover operational weaknesses. Ervin sheds light on equipment financing in the photo industry and the challenges family businesses face during transitional phases. We also explore the world of private equity, emphasizing the balance of rigorous discipline with human compassion, ensuring employees are more than just metrics. Discover how structured processes and clear job roles can enhance employee satisfaction and prepare businesses for seamless transitions. Ervin's insights into the role of a fractional CFO underscore the value of long-term engagement to support operational improvements and leadership, making this episode a must-listen for business owners ready to elevate their operations.
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Hosted and produced by Gary Pageau
Edited by Olivia Pageau
Announcer: Erin Manning
Welcome to the Dead Pixels Society podcast, the photo imaging industry's leading news source. Here's your host, Gary Pageau. The Dead Pixels Society podcast is brought to you by Mediaclip, Advertek Printing and Independent Photo Imagers.
Gary Pageau:Hello again and welcome to the Dead Pixels Society podcast. I'm your host, Gary Pageau, and today we're joined by Stewart Irvin of Bracket Management, who's a business consultant, fractional CFO and all-around great guy coming to us from Charlotte, North Carolina. Hi Stewart, how are you today?
Stewart Irvin:Hey, Gary, thanks for having me.
Gary Pageau:First, can you describe what a fractional CFO is and how you got into that business?
Stewart Irvin:Yeah, so a fractional CFO is actually something fairly new to the marketplace and it really fits in a variety of different positions. One it could be that there is a small business who has reached a ceiling and they say you know what, I just don't know how to break through this ceiling. I just don't know what to do. But they can't necessarily afford a full-time, seasoned, veteran CFO. So a fractional CFO would go in and work alongside of that business owner or that leader to help them put the strategies in place and things they need in order to break through that ceiling.
Stewart Irvin:The second area that people would reason why they would hire a CFO is maybe the business owner or leader has lost control of their business and they're like I am absolutely out of control, I don't know what to do, I don't know how much money I'm making, I'm just completely lost. And they can't afford a full-time CFO. So they hire a fractional CFO to come in alongside of them, help them get their financials in order, help them with their strategy and focus on operational execution. And again, all of this is done on a part-time basis.
Stewart Irvin:And really the last area that I see people hire a fractional CFO is very specific. Let's say that the company is wanting to sell, or the company has been sold, or they're in a position where they want to sell their business but they really just don't have their financials and whatnot in a particular manner or an order that could really allow you to understand the value of the business. And so they'll hire you on an interim basis to come in for a very specific project. Be it I'm merging with another company, I'm being acquired, I want to be sold, and so bring you in for a finite period of time with a very specific statement of work, and again you get a seasoned CFO at a fraction of the price.
Gary Pageau:So does that work on retainer or is it by the hour? Is it like I can commit eight hours a week, or? Is that how that works.
Stewart Irvin:It really. It really is very specific for me. I like working on retainer because it's a little more easier to manage. I can I can plan my revenue better, but a lot of times I actually have one client today who is in the process of being acquired. We really have no clue of the state of the business, and so I'm actually charging for the first four months charging an hourly rate because we have no clue as to what the workload is going to be, and then we've got to work.
Gary Pageau:you know, month five I'll be retained as their cfo going forward okay so how is this different from just having, like a cpa who does your books? Because, most people outsource that right. They've got a cpa firm who does their, do their quarterlies and they take care of the taxes and whatever. How is a fractional cfo different than outsourcing your cpa duties?
Stewart Irvin:yeah. So the fractional CFO actually embeds themselves with your business and they work alongside of you, right? That's really also the difference between a fractional CFO and a consultant. So we are a part of the team. The CPA is obviously they're helping you based off of your results. The CFO inserts themselves and say hey, I'm going to help you drive the business forward. And so, again, a CPA can definitely tell you how healthy your business is and they can look at all the things of what has happened, but most of the time the CPA is not there to help drive the business forward.
Gary Pageau:Right, because they're looking at what's already happened, not what's going to happen Absolutely. So how do you get into this? What's your background?
Stewart Irvin:Yeah. So I've always known from a very early age I wanted to go into business. I just really didn't know exactly what that meant. So, luckily for me, I started out in a family business when I was 16 years old and I really held every position within the business that really taught me the ins and outs of all the plays and inputs and outputs of what it looks like to run a business. Fast forward. You know that was in my late teens, early twenties really spent trying to identify that.
Stewart Irvin:So I went corporate small, large, all the things and I started Bracket really back in 2009. Bracket I had three small businesses. I had a college buddy of mine that had three small businesses. None of them were large enough to really have any overhead and so we said why don't we pull our resources together? We'll start bracket management, and it really was business as a service, and so we were doing bookkeeping, marketing, hr, all the things. Unfortunately, the majority of my money came through real estate investing at that time, and so you know, in that time frame the real estate market tanked. So therefore we put bracket on a shelf and I decided to go into the corporate route.
Stewart Irvin:So I realized in 2010, when I was actually in a supply chain role. I was the guy that would send out to the suppliers who could not support the program, and I had to turn them around in order to support our programs. And I realized, wait, a minute, I've kind of got a knack for this 2015,. I got my first opportunity to turn an entire business around, and then 2016, and it just kind of continued to show that I was pretty decent at doing the business turnaround thing and I wanted to start my own business back and I thought to myself I've learned so much about business turnaround and business strategy. I want to get out in front of the turnaround, like I. It's great to better come and get these guys fixed. I'd love to make it where. They didn't have to call a turnaround guy, and so, for me, I've always wanted to own a own multiple businesses. But you know as good as I do that takes a lot of capital, and I've.
Stewart Irvin:I came across the term fractional, a fractional executive, and I thought, man, that'd be a blast. I don't have to necessarily buy the companies, but I can help manage multiple companies, and so I stumbled on the fractional cfo. I started kind of investigating it and learning it and I said. You know what? I'm going to brand myself as a fractional CFO that has an operations lean, and I'm going to try to do everything in my power to get in front of the leader before the business turned south, took bracket off the shelf, rebranded it, adding a lot of the strategy stuff and dropping more of the business as a service. And then here we are.
Gary Pageau:What are some of the things that you typically see in a turnaround situation. Does the owner or manager or CEO even see it coming, or are they usually the last person to know?
Stewart Irvin:It's fairly unique, you know it really differs per leader, but a lot of times what you're going to see is the leader or the owner will reach out to me because they've hit a growth ceiling. It's normally what has happened. They're like I have been at this revenue level for five years. I've tried absolutely everything I know to do. I just have no clue what to do. That is typically when someone would call me. You know you go back to the turnaround days. It was man. I was stale for five years. Now, all of a sudden, my margins are starting to decrease and I'm really out of control. That's kind of a scenario too. But for the most part, today I've reached a growth season. I have no clue what to do. I need some help, yeah.
Gary Pageau:So it's a growth issue, but it really could be an operations problem that is causing the growth issue.
Stewart Irvin:Yeah. So we look at really three areas. When we come in, the very first thing I want to check is I want to understand the financials. So what I normally do is I say give me three years of financials. I really don't want to have a conversation with you yet. I'm going to look at your numbers and I'm going to let your numbers tell me a story. And then I'm going to go in to let your numbers tell me a story. And then I'm going to go in. Let's normally we have a discovery call and say is it of interest? Does this look like it may work? Yes, okay, give me your financials.
Stewart Irvin:Meeting number two, I'm going to tell you what your financials are telling me about your business. And so I translate the numbers to a story and I say is this really what's going on in your business? And nine times out of 10, man, you nailed it. So now I have a full understanding of where you're at financially. Traditionally, that will pinpoint me into some area of operational weakness. So then I dive into okay, let's talk about operations. Many times these companies don't have any metrics. They really have no clue. They can just tell you overall I have problems in this area. So I said okay, if you're decent financially, then we need to make sure that you're going to be good operationally. Right, because if you're good financially and you're not good operationally, your financials will soon suffer. So we focus on financials, we prop up your operations. Once all that is good to go, then we focus on strategy because, again, you can have good financials, you can execute greatly, but if you don't start driving your business, the other two areas will suffer.
Gary Pageau:Because typically financials are a trailing indicator of your operational situation.
Stewart Irvin:Absolutely, absolutely. So yes, I always tell everyone that's looking in the rearview mirror we got to get you looking out of the windshield, absolutely. So yes, that's why I always tell everyone that's looking in the rearview mirror. We got to get you looking out of the windshield, and so again. But the history will tell you where you're headed if you don't make changes, and so that's why we start there, and it does nothing for you to try to start driving your business forward if your operations is on shaky ground.
Gary Pageau:So one of the things that happens typically in the photo industry with, like photo labs, people like that, who are very production focused. Right, they got into the business, uh, because they uh want to make stuff. Right, they wanted to make prints, they wanted to create canvas or whatever. But in a lot of cases, like in today's financial market, you know that, of course, buying equipment and things like that is that an area you look at with equipment financing, because I think there's a lot of people who there's a lot of opportunity, for example, in the industry, to outsource, right, to do things, make things outside, versus buying equipment. And then there's also leasing equipment and all kinds of different things you can do. So what are some of the things you look at in that situation where you got, we have a production.
Stewart Irvin:One of the first things really is the second thing that we do once we come on and bring on a new client is we quickly try to get the client to somewhat start forecasting. The beauty about what we do is we can run a hundred different scenarios. We can say, hey, if you want to lease this equipment, this is what it's going to do to you, not only from a P&L standpoint but overall from a company health, because there's all these metrics that you can run and say, hey, you're going to be too leveraged or that you're not. You know that'll be perfectly fine, you're okay to do that.
Stewart Irvin:And a lot of times you run those scenarios and you can make a decision Do you have the cash and bandwidth to take that debt on? Cash and bandwidth to take that debt on, you'd be better off to lease it. Well, if you lease it, this is what you're going to have to do from a sales point to try to cover those additional costs. So you run all those scenarios and traditionally you run and you move forward with what makes the most sense to not hurt the business overall and then also to keep a healthy P&L.
Gary Pageau:And a lot of the businesses that you work with you were telling me, you know they're small businesses, like very similar to the type of business that listened to this program, and there's also a lot of family businesses, absolutely. So what are some of the considerations that family businesses have, where they're maybe looking at passing it on to the kids, or even maybe they're not in the family, they're looking at passing it on to maybe the store manager or the general manager of the operation. The owner wants to retire, because that's a very different situation than bringing in someone from the outside to purchase a business. You've got someone who has knowledge and maybe has a lot of biases.
Stewart Irvin:Yeah, and the other thing too is their baby right, and so you have to handle things a lot differently. It's easy to go into let's call it just an agnostic ownership, and just go in and say, hey, you're going to drive the business and you're going to do this, that and the other. But it's something different, particularly when you're dealing with a second generation owner. You know the first generation owner. They started from nothing. They normally have put everything on the line. A lot of times. You know they may or may not want to give it up, and so you just really have to handle that handoff much differently and every single case is different. You have some owners like I am selling off to the Bahamas, y'all take it and run with it, we're great, see you later.
Stewart Irvin:But what happens a lot of times is you have a unbridled second-generation owner that is going to be like like for 30 years I've worked under this guy, I've got all these ideas and I'm going to do this, this, this is, and it's my goal to try to say, oh, whoa, whoa, let's be very methodical, right and so that that handoff is very delicate and you got to make sure, when you do that handoff, that the second generation guy. He already feels a lot of pressure because when he's worked in in his whole life, this is his dad, mom's business. I can't screw this up, but then again I want to make my own name, and so it's tricky. It's tricky, and so what we really do is just try to put the framework in place and move slower than normal to make sure that we really don't rock the apple cart too bad because that's where I think you get into a lot of you know, I I wouldn't say rational decisions, but certainly emotional decisions.
Gary Pageau:Oh yeah, right, like you said, you got someone who's been in the business and they, hey, we've been. You know we've been doing this way and I knew if we did it this way it would be better. But maybe there was a reason for doing it that first way that this person isn't aware of, that's right.
Stewart Irvin:Yeah, there's a lot of emotion. So, so, really, I try to quickly, within the first few months, try to establish a set of metrics at a very high level so we can understand what moves are you going to make and how is that going to affect our numbers. Right, and so try to take all the emotion out of it because, again, traditionally there's no KPIs or metrics at all in the business.
Gary Pageau:What are some of the KPIs or metrics that you think in that situation would be like the top two or three someone needs to be looking at in a manufacturing type environment. Let's say they're making, you know, canvas frames or something like that. What are some of the things that initially they should be looking at?
Stewart Irvin:Yeah. So one of the first things we try to establish is somewhat again of a forecast, and so the first thing we want to look at is understand what's your 90-day backlog, right? How is your business coming in? Are you seeing a decline? Are you seeing it level out? What does that look like? Because you're in that handoff, the last thing you want to do is to have business drop. The second metric we really look at is on-time delivery or on-time to service, because, again, you want to continue to drive and make sure that your customers are 100% being taken care of. Really, those are the top two from an overall operational standpoint. All the other stuff, obviously, is your traditional understanding of your financials in regards to what are my margins looking like, how's my sales and admin expenses, are they tracking up or down, and what's my overall profit level. But when it comes to execution and handoff, your on-time delivery and your order entry and your bookings are really your two greater forward-looking indicators in regards to how is my business heading.
Gary Pageau:It seems to me like when people are looking to improve situations, one of the things they initially look to is like staff reductions or something like that. What is your perspective on that as an early step?
Stewart Irvin:Yeah, as early as I try not to do that. Obviously, a lot of times you go in and it is inefficient, right. What you also see a lot of times is many times they have employees who are just in the wrong seat, and so my goal is to get the company as healthy as possible and grow. So, inherently, if you're going to grow, you're going to you're going to need staff, right. So throughout the whole entire again, if they're if a turnaround, or even if they're not turnaround, they may be the first time they've really attended strategic growth I try to maintain the head count, unless it's just gross, unless I go in and you just see that man, this guy's just not going to cut it, period, right.
Stewart Irvin:Then you just make some logical moves. But no, you know I come from a background private equity and it was such a cutthroat deal and you know I had a number. You know, again, you're dealing with small family businesses with emotion. The last thing you want to do is come in and say you got to cut those five heads because they're just dead weight. Yeah, in time it will show itself, because you're going to put all these things in place and you'll put all these metrics and you're going to start to see this individual. I am paying them for nothing, but again, things just move a little slower when you're dealing with a small family business.
Gary Pageau:Right, it's interesting you bring up private equity, because that's been happening in our industry for a while. I wouldn't say a lot of private equity has gone into buying up some of the suppliers and there's been some apprehension there about what does private equity mean when it buys into business and what are their objectives as opposed to something else. So that's something you didn't appreciate when you worked with that company.
Stewart Irvin:That's right that's something you didn't appreciate when you worked with that company. That's right, yeah, yeah, I used to tell people now I really enjoyed my time in private equity. But what I try to do is I try to bring the private equity discipline and intention with a heart. That is the kicker right. I did not appreciate in how some of these PE firms that I work with they just really look at people as a number. Now I have dealt with some PE firms that I work with. They just really look at people as a number.
Stewart Irvin:Now I have dealt with some PE firms that say, hey, I literally exist because I want the employees to flourish, I want to make sure that the owner is being taken care of in the long run, and so they are out there. But particularly my background has been very cutthroat. But I have to say that you cannot argue with the fact that a disciplined approach and driving a business with intent it 100% pays off. It may not go as fast as you like. You may ultimately have to wind up cutting some people, but for the most part, if you can always mix a heart, a heartfelt approach to what you're doing, typically it's a win-win.
Gary Pageau:And from a manager. At the same point, you're almost giving the poor performers an opportunity to deselect the company right, absolutely Giving them. If they kind of see what's happening and that maybe they're you know, the jig is up. I'm not going to be able to take my two-hour lunches or do whatever it is they were doing. They may start looking elsewhere and that takes care of it itself if you don't, you know.
Stewart Irvin:Absolutely. Yeah, we really have six key things that we do when we walk into a business. The fifth thing that we focus on is developing an employee plan, because in many cases the employees show up, they really have no clue as to A what am I supposed to do? B how am I being judged? Am I being paid fairly? And I mean I would love a bonus. And so we come right in and we try to create job descriptions for every employee. We come up with at least three to five KPIs or performance indicators as to how well they are doing their job.
Stewart Irvin:We try to do some industry research and say, hey, this is the range of pay that you should be getting paid. And do some industry research and say, hey, this is the range of pay that you should be getting paid. And in many cases we have to adjust that up because the business owner didn't realize that the market's paying $22 an hour and you're paying this guy 18. So we'd have to make their adjustments up. And then, once all that stuff is in place, we put in a bonus plan. But a lot of times the kicker as to whether that employee is going to stay long-term really centers around how you measure their performance. And again it could be three to five different things that you look at, but for the most part that will again put an objective number on. Is this guy giving me what I'm paying him to do?
Gary Pageau:The other thing that is the benefit of this having job descriptions, having processes, having, you know, measurable metrics, kpis, whatnot. In place is it also positions the company for transfer or sale?
Stewart Irvin:Absolutely 100%. Yeah, it just tidies everything up. And then again. So I've got a client today. They want to move into the aerospace industry and I come from aerospace. I was a sourcing guy and I told them. I said the very first thing they're going to want to know is what's this on-time delivery? What's your scrap rate? There's a whole series of numbers that they're going to want to know. A buyer of your business is no different. They're going to want to know what are these three key areas, and it is somewhat different for each industry, but at the highest level, you got to have something in place to say hey, here's my employees and here's the output that they have. And so, again, it just tidies everything up. It makes the transition much easier.
Gary Pageau:So how long typically do you engage with a client? You know you say you like a long term thing, but is it a year? Is it ongoing, Is it forever? Is that what people can expect when they work with a fractional CFO?
Stewart Irvin:So it really varies. The fractional CFO is still somewhat being defined, right, and so you've got different guys offer different levels of service. For me, because I am so operations leaning, I am much more hands-on and much more long-term. I was listening to another CFO's talk the other day and he said his average engagement is six months. Well, that's crazy, right. For me it's like man, you know, I can't turn people over every six months.
Stewart Irvin:One. I'm an ops guy, right, so I somewhat embed myself with the company and so I'm in there for the long run. I am as part of their senior level staff, as the COO or even the CEO. So for me it's much more of a longer play. But you have others who, again, if they're on an interim basis, they're turning people over much more often.
Stewart Irvin:You have some that are very just I come in, I do your books, I'm here eight hours a week. You can't call me outside of this window, you know, and and that's it. That's not me. I'm available 24, seven. Again, I am as an employee to that business, and so I think you had to find a fractional CFO that works for you. You may say, hey, I don't want anybody, I just need somebody to run my books and tell me where I'm headed. That's great, that guy may be for you. You may say hey, I live in on the Western part of North Carolina. I have two clients on the Eastern part of North Carolina, so the very first week of the month I'm driving back East and I spend a week with these guys and they literally say, man, I just like to see you, I just like you to come into my, come into the building, you know, and so that's the level of service that I provide, but that's not what everyone does, so it really varies, because that level of service is still somewhat being defined.
Gary Pageau:So let's flip the script a little bit, and we've talked a lot about positioning your business for sale right or transition to pass on. What about if you're looking to grow through acquisition? What are some of the things you would want in place as a fractional CFO for a business to be in that position?
Stewart Irvin:Yeah. So a lot of times that's going to be. If you're looking at growth through acquisition, they're going to look at you and say, hey, can I buy you because I can add value to you, because I see so much waste? Right? So you can say, hey, I want to be sold, I want to be sold now, but, okay, you might be sold at a discount, because someone sees, hey, I could go and strip all this cost out and turn you over in five years and we'll be good to go.
Stewart Irvin:The other aspect could be do you have some intellectual property, some process that's specific to you? And they can look in there and say, hmm, I want that because I could see how I could add value this, this, this. Then you can be sold there there. The other aspect is, you could just be very profitable with a very nice backlogging portfolio, and that bigger guy says, hey, I just want to acquire you because I want to add you, I want to take on your work, and so it really varies as to where you're at as a business. At the end of the day, though, you still have to have very thin financials. It's great if you have a trend in regard to you know wherever you've been in the last two, three years, but at the end of the day, they're still going to value your financials and see how, to you know, do their due diligence process how accurate are your financials and is this trend accurate or not?
Gary Pageau:Well, where I was going with that. Let's say you've turned someone around. Let's say you've taken one of your clients to a great place. Now they're looking around.
Stewart Irvin:Oh they're looking around to acquire Right. Oh, gotcha, gotcha.
Gary Pageau:So they're saying, hey, now I've got my everything in a group, right, I'm great. Now I want to grow that way.
Stewart Irvin:Got you Okay, so we'll just flip that, then you know.
Gary Pageau:So what should they be looking for? Should they be looking for people that they can put through the same process, or people already there? That's my question.
Stewart Irvin:Yeah. So actually I've got a client who's looking to acquire right now and I told him I said, listen, the last thing you want to do is acquire someone. They're not 100% whole at this time, right, they're still trying to grow. So I said, what you want to do is you want to make sure that you're acquiring someone who is equal to or maybe even slightly better than you. If you're not healthy, the worst thing you can do is acquire anyone. But let's just say, all things aside, you're a good business, you're healthy, you're ready, you're ready to move. Then you can look and say, hey, I want to grow my revenue through acquisition, which means you're going to go acquire a company.
Stewart Irvin:There's similar scope of service. It could be that you know it's close enough that you can absorb them and not be that much of a disruption, because the last thing you want to do is bring someone on that's going to bring your company down. The other aspect of is man, I've got my stuff nailed down, my processes are great. I want to go buy that smaller company that's out of control, because now I know how to go turn those guys around. Those really are the two areas that I see the smaller businesses going through the acquisition route.
Gary Pageau:Because I think there is sort of an idea that when acquisitions happen they can be great because they can be additive, right, similar business. I can just tweet their process and put my model in there and that's great. A lot of retail does that. But I also see it where people think they can expand and they get into maybe an adjacent business, but it's just different enough where it's dragging everything else down 100%, and it's really not much different than growing too fast, right, you got to really make sure do you have the funds and the capital to?
Stewart Irvin:I mean, you could be doubling your business overnight. That takes a lot of cash, right, and it could be that again, it's just they're just enough off. And different that now your focus shifts to I've got to. All my focus is on I've got to make sure that that merger happens great, and you lose sight of the main business and all of a sudden you look three, four, five, six months later and you're way off course, and so it's very tricky to navigate that. And so the due diligence part is critical, and really you got to make sure that your business is not only capital healthy but also process healthy, and then the owner or whoever's going to be a part of that merger can make sure that I can take my eyes off the ball just for a minute to make sure this process works out, because it is a huge undertaking to try to bring someone in to your fold.
Gary Pageau:Awesome. So where can people go for more information and learn about Bracket Management? Some of the tools and offerings that you have.
Stewart Irvin:Yeah, so they can check the website out, bracket MGMT, which is just managementshortenedcom. We actually have an assessment on that site that focuses on those three areas that we talked about, right? So there's an assessment that talks about how we financially, how we focused on the operationally and what is our. What is our and what it is is a very objective approach. So you go through and take the assessment. Each area has about 30 to 35 questions. You get a score back and a customized report that says, hey, these are the three areas you do good, these are the three areas that need improvement, and then you get an overall business score and then from there you can say, hey, I need to go focus on my financial, strategic or operational execution.
Gary Pageau:Well, listen, Stewart, it's been great meeting you. It's great learning more about what a fractional CFO does and your background in it. I think you've been very helpful to our listeners and thank you so much.
Stewart Irvin:Awesome. Thanks for having me.
Erin Manning:Thank you for listening to the Dead Pixels Society podcast. Read more great stories and sign up for the newsletter at wwwthedeadpixelssocietycom.