Budget Your Business

Owner Insight: Patrick Butler Explains the Advantages of Full Financial Transparency and his Planning System

• Scott Geller • Season 1 • Episode 26

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Wondering how to share business financial information with your company?

Patrick Butler, owner of an IT managed services firm before selling it, shares his secrets. 

The key was full transparency throughout the business, inspired by "The Great Game of Business." 

Patrick also shares his 2-prong approach to financial planning, identifying the pros and cons from his perspective. 


Find out more about Patrick Butler: https://www.linkedin.com/in/patrickbbutler/ 

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Patrick Butler:

Budgeting was an incredibly important part of my peace of mind and plus, you know, the functioning of the business got really dependent on it.

Scott Geller:

Hello and welcome to Budget your Business, the podcast for small business owners who want to learn how to financially plan for every aspect of their business. I'm your host, scott Geller. Today I'm joined by Patrick Butler, who currently owned and operate an IT services company. Patrick, you are the first guest on Budget your Business to provide a unique perspective that I've been wanting to get on here from the owner's perspective and how they look at budgeting and planning. So congrats on being the number one from that and thanks for coming on.

Patrick Butler:

Yeah, thanks for having me, Scott.

Scott Geller:

For folks who are meeting you for the first time, could you share a little bit about who you are and a little bit of what you do, and then we'll kind of get into the budgeting with your former company.

Patrick Butler:

Sure. So, yeah, I had a IT managed service provider based out of Richmond, virginia, for almost 20 years, sold it back in 2023. So you know my background is definitely in technology, technology, leadership, technology management. Took some time off, spent it with my kids. I'm glad I did that because I'll probably never get to do that again. And since then I've been doing some light consulting, helping through my current company, Butler Consulting, helping small businesses launch SaaS products and traditionally non-SaaS industries, and I'm actually right now in the process of looking at launching two new startups. I'm working with Startup Virginia great program, by the way. Just started that. So more to come on it, but I can't say much now.

Scott Geller:

Understood. And I'll tell you what, patrick. I've worked with and talked to people that have sold their businesses, and almost to a T. They all know most of them take a little bit of time off after the transaction goes through and all of them say, yeah, just took some time off and it's probably the best thing I did. So I'm glad to hear that that worked out for you as well.

Patrick Butler:

Yeah, it did. It was much needed. You know, mentally and physically, you know your health suffers a lot, and I've been focused on getting back in shape and eating the right way, and so I'm in a much better spot than I was back then.

Scott Geller:

Well, good, good, glad to hear it. As I mentioned, patrick, so this typically I have on the show individuals that have expertise or they run their own company or consultant, but this is really the first time that I've had a business owner come on and just explain how they went through their budgeting process, how they went through their planning process and provide that little bit different perspective in the area of budgeting and planning. But before we get into that, could you just tell us a little bit about your former company what was the size and maybe how many people, exactly specifically what you did, just to let our listeners know what we're talking about.

Patrick Butler:

Sure. So we were headquartered in Richmond and we were doing roughly around $20 million in revenue when we sold the business.

Scott Geller:

And of that revenue.

Patrick Butler:

About roughly 90% of it was recurring revenue, 10% of it was combination of professional services and or resale, like hardware, software resale. We had, I'd say, roughly 70 employees and another maybe 20 to 40 subcontractors working for us. We did a little bit of project work and some of that project work could be, you know, bursty, and so we'd want to flex into some of those variable resources. The subcontractors, yeah, but by the end you know, we were servicing clients all around the country. Average client size was, I'd say, 50, 200 employee type organizations, which was atypical in our world. In the ITMSP world, generally those guys focus on 25 to 50 employees. So we were somewhat unique in the industry but we did it well and I think we developed a really good niche.

Scott Geller:

Absolutely so. You were the definition of a small business and really even serving small businesses too. That's right, good, and you were there for I think you mentioned it was about 20 years, is that right?

Patrick Butler:

Yeah, it was 19 and some change, yep.

Scott Geller:

Okay, we can round that to 20, or I can round it down to like 10 if you want to feel a little bit younger, patrick, patrick, so as you were there, you were operating and running the organization.

Patrick Butler:

What did budgeting mean for you as the business owner? So I'm a financially minded guy anyway. Right, I live in spreadsheets. I love spreadsheets.

Patrick Butler:

Budgeting was an incredibly important part of my peace of mind and plus, you know, the functioning of the business got really dependent on it. So what we would do, I had two things and this is just the way I did it. Scott, you jump in, you've probably got the proper terminology for all this stuff, but I would do two things. I would create a budget at the beginning of the year, and our fiscal year was traditional January to December. We would create a budget that we froze at the beginning of the year. Then I would do a rolling. Three plus nine is what we called it. It's like a rolling budget, right, we'd update it every. Actually we updated a lot more monthly, but the intent was to update it monthly.

Patrick Butler:

So the budgeting process itself you know we would try to start, you know, two months before you know the fiscal year. So for us call it October, november timeframe. We're starting to do our budgeting. We would always tie that in hand-in-hand with strategic planning for the year. And so, to start, I would create a baseline budget. And what does that mean?

Patrick Butler:

So we were a recurring revenue business. 90% of our revenue roughly was recurring. Our contracts were one to five years, some occasionally a little longer than that, but these are longer term contracts and so there was some predictability to our business. And so we would take what we knew, those existing contracts that we knew were going to be there this year, all the expenses associated with them, and we would layer that into a budget without any growth or no organic growth and no net new sales.

Patrick Butler:

We would kind of examine that and make sure we had that really teed up, because we, our business and I'm sure all businesses are like this, but our business especially had a lot of variable expenses. You know Microsoft licensing is, you know, for anyone who's been in that world is a nightmare and you know we had that times, probably 10. So we were always focused, hyper-focused, on the variable expenses. So once we had that baseline budget done, then we would layer in new sales on top of that and generally we would do kind of a conservative, a middle of the road, an aggressive, kind of a sales forecast, generally settling on that middle of the road, and that would be our plan for the year, right, and then we would do strategic planning around the same time, and so you know obviously our one, you know one page strategic plan would always align with the budget Right.

Patrick Butler:

The revenue targets, the KPIs, everything built into the financial models would all tie into the strategic plan too. And then, on a go forward basis, once we froze that, like I said, we would do the three plus nine and we'd update it. You know, honestly, I updated it probably too frequently, but I was probably doing it weekly and that's pretty often Patrick.

Patrick Butler:

Yeah, it's pretty often. Yeah, we might get into a little bit of why I did that. I'm a little crazy, but you know it helped give me a little peace of mind and then you know we would do. You know, at the end of the month we'd close the books and we'd always do a budget versus actuals comparison. Our accounting department would release the financials. We'd have a board meeting and review how we did relative to the budget.

Scott Geller:

Okay Now you mentioned a couple times we who all did you involve in the process.

Patrick Butler:

Well, that changed, obviously as we grew. In the beginning it was me and whoever was in accounting, generally know, on our team. She was with us the whole time. I was there, we had the company and she and I would sit down and, you know, work for hours on it. But as we grew and brought in managers and professional managers and you know folks- wanted to get more and more involved.

Patrick Butler:

We would bring in department heads to do budgets. I will say one of the things we were working towards and never successfully accomplished was having individual P&Ls for each one of our managers. Service owners people who own those individual services Would have loved to have had that. Never did successfully do it. We were in the process of kind of redoing the chart of accounts and leveraging some of the tools and QuickBooks to do that. At the end Never finished, but yeah, it was. You know it was always a group process. I learned early on that doing budgeting in an ivory tower is a huge mistake. Right, I mean, I make assumptions about the business. Either I don't have the proper information or you know the folks on the team you know if I do it by myself don't have the same buy-in as they do if they are involved in the process.

Patrick Butler:

So it's really important for a number of reasons in my opinion, to have kind of your leadership team involved.

Scott Geller:

Okay, and it did that. So how much? What did you share? Because that's always a big question and almost kind of a sticking point of yeah, I want to bring people in as part of the budgeting process, but at the same time I may or may not want them to know what the bottom line says or other aspects of financial parts of the business. So how did you handle that?

Patrick Butler:

Um, we were. I don't know if we were unique. Uh, I think that's a philosophical, strategic question. Right, you have to fundamentally decide whether you trust your employees or not to do, uh, to have that information and you know, to assume they're going to use that, for you know, good, have good intention with the information. We, we chose to go that route. We actually were very, very close booked. Um, I would guess it was around 2011 when we all read the Great Game of Business. It was Jack Stack, maybe somebody. I think it was Jack Stack, but Great Game of Business was the book and the idea is it's a completely open kimono. Other than sharing individual salaries, everything is shared with the entire organization, with the entire organization, and actually you assign, you know, kind of every line in the chart of accounts has an owner, and it's not necessarily a manager who has an owner and they're responsible for making sure we hit the numbers for that specific you know.

Patrick Butler:

So it's a licensing line item or, you know, revenue line item or whatever right, they own it. And there were weekly we did. We did this for a period of time. We ended up stopping doing this, but while we did it, I think there were weekly or monthly standups where the whole company would participate in the, in the owners of the individual lines and the chart of accounts would get up and say here's what the number was when I, when we started the month, and here's where I think it's going to end at the end of the month and here's why. Right. And so it gave them some accountability.

Patrick Butler:

Roll forward a couple of years we stopped doing that. It was just hard to keep up with, honestly, but we never really lost the mentality around sharing pretty much everything with the employees. So what did that mean? The managers had everything short of a salary. They could see the aggregate salary number, everyone could see the aggregate salary number actually and the individual managers had the salaries of their individual team members, but they didn't have other folks as team members. And company standups we would share. We would generally roll up the information because it's hard to show in the large standup, you know, with a hundred people in a room but the financials. So we would roll it up and show some macro numbers. But I always told everyone if you want to see the specific numbers, let me know and I'll open up the.

Scott Geller:

P&L and show you.

Patrick Butler:

And I did on a regular basis have people come in the room and want to understand the numbers, why something changed what they did or what they could have done differently, maybe to impact the numbers. I found it really empowering.

Scott Geller:

People liked it.

Patrick Butler:

They enjoyed it, they felt like they were part of the business and we had success doing it. So I'm a big advocate of that, you know. Transparency with the books, short of individual payroll.

Scott Geller:

I love that, patrick. That's a success story down that path it is. You started it off. It's a philosophical question, right, and do you feel like it would have? It sounds like you went all in right. You kind of went all in to share everything. Is that accurate?

Patrick Butler:

It is and the reason? I don't know the reason we did. I think there's an education that's required for a lot of employees because they don't live in a P&L day in and day out, right, and I think a lot of employees sit there and think that you know, the CEO of the business is making you know a ton of money printing money sitting there.

Scott Geller:

I think you're right. I think that's the thought of every employee, right, like the CEO is swimming and he's got his vault of cash. He's swimming in.

Patrick Butler:

That's right. And if you can show like, hey, because we were a growth-oriented business, we were not a lifestyle business, right, my objective was to grow as big as we possibly could, so we were always reinvesting. Right, we are. My objective was to grow as big as we possibly could, so we were always reinvesting. And you know, honestly, my, my pay was lower than a lot of people in the organization. Right, and I did that on purpose. Right, because I wanted to continuously invest in the organization and the team members. Right, I wanted to make sure we could hire the right folks, the talent that we needed on the team. And I think people respected that when they saw kind of, hey, you know we're not. We are making money, we're always profitable, but you know we're reinvesting that.

Patrick Butler:

Right, and some of the initiatives that the employees are bringing up, you know whether it was for us. You know we had to revamp our data center, or maybe we had a big R&D effort to figure out how to get some Microsoft's public cloud, or, you know, center, or maybe we had a big R&D effort to figure out how to get to Microsoft's public cloud, or there's a new product offering, so some R&D around that, or a big conference that was coming up that people needed to go to. They could see us making those decisions real time. We made whatever it was last month.

Patrick Butler:

We're going to take 10 grand of that and we're going to now go do that conference. So they saw, I think the profit is fuel to do things they wanted to do, as opposed to somebody sticking it in their back pocket and enriching themselves through their hard work. So it really, I think, helped rally the troops around the mission. Yeah, now it sounds like you share the P&L. Did you share the balance sheet as well, or any cash flow information? We never showed the balance sheet. I don't believe you know why. I don't, don't know. I think that's a little more complicated maybe to get into, but I don't know. I don't have a really good reason why we didn't share it, other than that it never came up.

Patrick Butler:

We never shared cashflow statements, but we did share cash. So we would tell the company right, here's how much cash we have in the bank. So, as an example, like going through COVID, right, everyone's concerned, like you know what's happened to our business, are we safe, are we secure, are we going to keep our jobs Right? And I think, by showing the company, like there were periods during COVID where we took intentional losses to retain talent, and but if you can show somebody, yeah, you're losing.

Patrick Butler:

You know I'm making numbers, you know 50 grand a month right now, but you've got two million dollars in the bank Right, that it still takes a long time to get to a point where you're starting to worry. You had 50 grand a month and so I think by sharing the cash numbers when it's appropriate is it can be powerful. But I also think you know if you share cash numbers, there might be reasons you dip into cash Right Now. Cash numbers there might be reasons you dip into cash right Now. We bought a business in Connecticut and you know we dipped into our cash to do that, right, and so cash reserves drop and if you don't have the story around why the cash is changing and fluctuating, it can create some maybe potentially some concern. I never we never had that experience, but I could see where you know if you dip below a certain point, people are starting to get worried if they don't have the full story behind why that's happening.

Scott Geller:

So, patrick, I love your openness around, how you share this with employees, and I think a lot of companies should consider that. How did that approach? Or how did your budgeting process? How did it impact your decision making?

Patrick Butler:

Well, so it did two things. When we were doing budgeting, it impacted the strategic plan, because we always do those hand in hand. And so when we're looking at our annual and our quarterly priorities which oftentimes were projects that required investment, we were making the, we were reserving kind of the cash. We're setting aside the cash every year to do those projects. So it drove kind of our quarterly and our annual major projects. But what it also did was on a day-to-day basis, it allowed us to make better decisions and get proactive about a certain thing. So I'll give you an example right, if we are in the process of onboarding a new customer and they might be three, six months out, right, going through the process, to a budget for that, we would say, hey, let's hire this person, you know, two months in advance. Right, so that we can, you know, get them onboarded, get them trained, get them fully ready, right, so if we're going to do that two months in advance, we know it takes us 45 days to find somebody, right, so back out, another 45 days, right, and so that's when we start kind of the recruiting process, right? So it allowed our HR team to say, ok, now it's time to go, look for this employee, let's go do the job posting and start the recruiting process Right.

Patrick Butler:

So you could do things like that knowing what's coming and knowing where you're going to be spending money, what projects you're going to be doing. Drove kind of initial behavior to prepare for those things. Drove kind of initial behavior to prepare for those things. It also allowed you kind of real time by doing kind of these three plus nines or these rolling budgets forecast to make kind of point in time decisions too. So if an opportunity popped up to go be a speaker at a conference and we had to spend three grand or whatever to go plane tickets and hotels and whatnot we could make the decision easily yeah, that's worth doing. We've got a little extra cash in the bank coming. We're pretty comfortable with where we are right now. Yeah, let's go make that extra investment Right, so you could do some of that kind of gut check type stuff. It gave you a little peace of mind that you knew where you were, you knew where you're going and you kind of in real time make some smaller decisions. So, yeah, I think it helps a ton with decisioning.

Scott Geller:

Okay, and if you had to do it, if you're back in your shoes you know you're kind of looking back what would you do differently today?

Patrick Butler:

I'd do a lot differently today. Yeah, I think I think one of the well, I think a couple of things. One is we never we use spreadsheets for everything, and this might sound silly, but it really was a big problem for us, and I mentioned at the start that I was pretty. I'm pretty, let's see. I like to run a lot of different scenarios when I would do budgeting, and certainly when we got into the three plus nine world, there was a lot of what if? Scenarios that I wanted to run and everything was done through spreadsheets and we used to have 15, no kidding, 15, 20, maybe 30 different forecast spreadsheets. Oh wow, that's a lot, you know, for all sorts of different scenarios and you can imagine the complexity that comes with that. Things get missed, right, and I should not have done it that way. I should have done it, you know, far less complicated. But anyway, long story short, I would have done a tool so we were actually starting to look at I think it was called VENA, v-e-n-a, I believe is what it was called I'm sure there's a hundred of them out there but a budgeting tool that allows you to easily run what-if scenarios. So me as the CEO sitting there wondering what happens if this customer goes away or what happens if we do close this account. Like I can go do that in the tool and not tap into my accounting department. Not have to worry about creating yet another spreadsheet and then worried about which one are we using is kind of the actuals or the actual, you know three plus nine spreadsheet. So it just created a lot of complexity. That was unnecessary.

Patrick Butler:

The other thing I would do is I absolutely would have earlier that I did set up the chart of accounts and leverage some of the tools and quickbooks I think they're called classes maybe, but whatever they are allowing you to look at profitability by service line, because I could never get a sense for, of the services we offered, which ones were making money, which ones were. I can only tell you if the company was making money, which ones were making money, which ones were. I can only tell you if the company was making money. And I feel like that was a huge hamstring for me, not figuring out where I want to double down my investments versus where I want to maybe back off or even stop doing something. So that was hard. So I think those are the two things I probably would have done different out of the gate.

Scott Geller:

Did you try to go into where you were looking at different service lines by class? Did you try to accomplish that outside of QuickBooks first, or is that kind of your first real attempt to get there?

Patrick Butler:

No, we never really tried to do it outside of QuickBooks. It was so complicated. We didn't do a good job. I didn't do a good job. I'm not weak to me with the chart of accounts and the way we initially set it up. Yeah, I think it was just too complicated to do. Wish I could have, but we didn't get around to it, gotcha.

Scott Geller:

Did you simplify the chart of accounts and start using classes?

Patrick Butler:

That's what we were working on, yeah, and so we were doing more of a roll-up structure with the chart of accounts. We had never done in Connecticut and, as you can imagine, now I've got another set chart of accounts, so we've got to figure out how to integrate the two companies, and so that whole project got to put on hold and I know my managers were begging for it. I mean, you know begging for it, and rightly so, but we never got around to truly getting to that point.

Scott Geller:

I do see that where sometimes having a simpler or a shorter chart of accounts can get you provide more value than more extensive or just longer chart of accounts.

Patrick Butler:

Yeah, I think there's definitely some truth to that. And using classes, I guess, or whatever it is, to kind of look at some of the more granular stuff you want to look at. I'll tell you, whenever we used in a board meeting or in a presentation to the company, it was always a rolled up version, right? It always was that simple chart of accounts, right, that highest level chart of accounts, because that was the most useful for really everybody on a day-to-day basis.

Scott Geller:

Yeah. So, patrick, I want to change directions slightly, just because you sold your business and had a successful sale after working with the business for 20 years, and the business owners that I talk to or work with you know the common question is if I want to sell my business, when should I start thinking about it and taking action for that? I'm curious when did you? I sound like you were already kind of thinking about it, because you mentioned we were in that growth mindset.

Patrick Butler:

so I'm you know maybe you can share, uh, at least even just briefly, what you can of when you started thinking about that and when you started preparing for that process, um, it was. It was always understood. I mean, we had, um, you know, programs in place. We never hit it it. The goal was to sell the business at some point. So I think all along we've been thinking about it. We had a number of times he brought in consultants to help us think through when we should start thinking about it and what things we need to do to kind of prepare for selling the business. And I got to be honest, at the end of the day it's timing for the individual. My dad was my partner in the business. He's obviously a lot older than I am. For him he was approaching 70 and it was the right time he wanted to go do something else.

Patrick Butler:

I think in a perfect world you'd probably try to time the market a little bit. You look at kind of valuations, you kind of measure your EBITDA on a regular basis, you apply the multiples and once you get to that point you hit your number. Everyone's got a number right. Then maybe you start to shop it a little bit. We talked to investment bankers. Boxwood Consulting, who's a local company, did fantastic work for us. You know I highly recommend those guys. But yeah, I mean it's a stressful process and I think it's a very emotional process. I mean your identity is tied up into the company and you know, going through a transaction like that, it's you got to start with yourself first and then to make sure that the finances work out too. I mean, by the end of the day it's about you know when are you ready as an owner?

Scott Geller:

I love that, patrick. A lot of people. I think there's pressure sometimes of, oh you should sell or you shouldn't sell, and really it's for the person right. The businesses should be there for the person. You're not there for the business and you should sell when it's right for you. I love that answer. Well, speaking of the right timing, we're rolling up on 30 minutes here and I don't want to take up too much of your time, Patrick. I'd like to wrap up our shows with one to three immediate takeaways that our listeners could, when they turn off the podcast, they could go implement in their business. It could be something you mentioned already you shared some really great content with us or it could be something new. What do you have for us?

Patrick Butler:

Well, sticking to kind of the budget theme, one of the things I made a huge. I feel like we would have been far more successful had we not done this. But it's very easy when you're doing budgeting to cut marketing first and I think that's a mistake. I really do, knowing what I know now, I think we would have mistake. I really do. Knowing what I know now, I think we've been far more successful. I mean we lost I shouldn't say we lost, but there were certainly competitive situations where people had better marketing than we did and I think that played into some of the decisions that got made. So I would not cut marketing first. I would truly evaluate kind of everything. Marketing may be a part of that, but don't cut marketing down to zero.

Patrick Butler:

I think you know looking at your rolling forecast on a monthly basis is probably doing rolling forecasts. I think you know our business anyway. I assume this is true for all small businesses right, cash can be tight at times. There's not, you know, huge. You know bit loads of cash in the bank generally and you really need to be close to the numbers. And by doing kind of a monthly rolling forecast, I think it certainly gave me and I think it would give other owners kind of peace of mind that they know where they are, where they stand.

Patrick Butler:

There's no better scorecard, in my opinion, than the financials. It's not the only thing to look at, but it's certainly one of the best scorecards you have. So, looking at that monthly, and I also think, don't ignore cash when you're budgeting. Right, it's easy to just kind of look at a P&L when you're forecasting stuff, but you know, for us, things like you know I think they were called prepaid accounts or whatever like there would be some, you know large. You know cash outlays in January every year, right, that we would spread in a P&L over 12 months. But you know, you know from a cash perspective, all the cash came out you know day one. So you know thinking through cash also as you do budgeting and making sure you know you're not dipping below.

Scott Geller:

You know the comfort level is also very important. Excellent, patrick. I, like all three of those, you know, don't cut marketing to zero right, because it does have a purpose, and evaluate it. But the rolling forecast and don't forget about the cash is definitely speaking my language, so I appreciate that.

Patrick Butler:

Yeah, no problem.

Scott Geller:

Well, this has been great Patrick.

Patrick Butler:

In case anybody you know, maybe wants to find out more about you. Is there any way to contact you? Probably the best way to contact me right now is on LinkedIn. I mean, if you want to email me it's Patrick at ButlerConsultingco also.

Scott Geller:

Okay, great Well. Thanks for joining us today, patrick, and providing your very unique perspective as a business owner.

Patrick Butler:

Sure Thanks for having me, Scott.

Scott Geller:

All right, folks, that's it for today. If you liked the show or found something useful text or reach out to somebody and say, hey, I've got a podcast Budget your Business I want you to take a listen and let you know what they think about it. I'm Scott Keller and I hope you join me next time for Budget your Business.