Ep. 314: Mel Latu - Small Changes, Big Impact: Building Strong Financial Foundations
Welcome to another episode of Count Me In. I'm your host, Adam Larson. Today, I'm joined by Mel Latu, founder and CEO of the Cashflow Boss. Mel's journey into finance started off personal necessity, learning how to master cash flow forecasting when her family faced a major financial upheaval. That skill soon became a backbone of her mission to help small business owners build a solid financial foundation before problems hit.
Adam Larson:In this conversation, Mel and I explore the blind spots that often trip up small businesses, the benefits of real time financial versus traditional month end reporting, and the importance of proactive forecasting in today's fast moving market. Mel shares AxiML strategies, top tools, and advice on how financial professionals and business owners alike can make smarter decisions and drive growth. You won't want to miss these practical tips, so let's dive right in. Well, Mel, thanks so much for coming on the podcast today and your journey into finance and accounting is unique. You know, you started it started kind of with your personal need to manage cash flow.
Adam Larson:So I was hoping you could share a little bit about your experience and how that shaped your business approach.
Mel Latu:Absolutely. And thanks for having me, Adam. I love to talk about forecasting. It's the most powerful unused tool in our financial day to day. Cash flow forecasting started for me to be a very simple spreadsheet to figure out how I was going to manage two households.
Mel Latu:My mother had become terminally ill and went from a 6 figure income to social security, and that's a drastic change in income. So we had to do some major forecasting and alignment between two households. And it's something that became a tool of survival and just, had so many layers and ways that we could keep using it and started using it as a business tool as well.
Adam Larson:So what caused you to think, Hey, I can take what I've learned and go help others with it?
Mel Latu:Sure. So in that same season of having to learn to manage money with a drastic change of inflow and massive change of outflows, right, two homes, less money, I also had to change my career. My corporate career was operations management, C level, great salary, not the right balance of life for being a caretaker and a parent at the same time. So I had to step out of that role, but I still would be the worst employee, right? I could not just come in entry level.
Mel Latu:So I needed to find something that challenged me, but wouldn't give me the staff or the need to be at work as much while my mom was fighting her cancer battle. So, I'm on Indeed and I started looking for executive admin type positions. That way I'm in a role that is beneficial, but I'm also not hopefully managing a bunch of people. And I found myself working for a turnaround consultant. I had no idea really what the industry was or what the job was, nor did I care a lot at the moment.
Mel Latu:It was a job that would fit my balance of life for what was going on personally. Once I got in, my job was to help reset up the back office and the financial foundation of these companies that were coming to my boss to either turn them around so that we could get them sold, or he sometimes would just buy them and we would restructure and then we would sell. So through that work, a couple of things happened. One, I got to work on the back side of putting out all the fires, which is really cool because you're walking through the fire with these clients and business owners and having to figure out how did you get here? Oh my gosh, what did you do?
Mel Latu:And then now you get to turn it into a proactive process for other people you meet along the way. Right? And the constant, every single one of these businesses had that came to the turnaround firm was the lack of a financial foundation that nobody did the bookkeeping, right? No one looked at the reports. Reporting and anything related to the accounting was compliance, right?
Mel Latu:Just do it because we have to, taxes are coming, things like that. Never use it as a tool. And so when for me, it just became like, here's another one. Here's another one. Oh my gosh, another company, another husband, father that is taking second mortgages and all these crazy financial strains on his personal life to keep this business going when he would've never been in that position if there was a foundation and proper planning.
Mel Latu:And so it just turned into It just became clear, crystal clear, there's a hole here. And then to dial it back, knowing I'm in their finances and I can see that none of these companies either could afford a C level CFO on staff, right? When you're starting up, you're launching your dream, you don't have that. Adam, it turned into a desire to be a bridge for small business. How can we design a working relationship that we can offer C level services for small business budgets and help them grow, teach them the foundations, make sure they understand their bookkeeping.
Mel Latu:And that's where it all started, just seeing the common problem every single day and seeing the financial strain these companies, the debt that they would take on to fix what they broke because they didn't know.
Adam Larson:So what are some of those what are some of those blindsight, some of those things that they weren't seeing that, you know, that if somebody listening to this is saying, maybe I should look for that.
Mel Latu:Sure. So there's two elements in how we view differently. And a lot of it comes to my background of being in operations management. And I had to look at financials and run a team, right? I wasn't looking at financials from a just I need to file my taxes.
Mel Latu:I had to look at these numbers and figure out how to get a team to work more efficiently, whatever, so I can move those margins. So my outlook on the output of financials that we produce needs to be when you look at that report, does it tell you something about your business? So step one is look at your profit and loss statement and your balance sheet. If you don't know what those are or know how to read them, you gotta start there. It's very first, just understand them because it's something that we continue to see in small business that you don't learn about until you are at the bank asking for money, you're on the selling block asking for top dollar, and now you're leaving a bunch of money on the table because your books are bad, right?
Mel Latu:Or you need an investor and you can't get a good valuation of your company because you didn't do these things in the very beginning. So looking at your financials. Number two, the second part of that is the forecasting element and projecting all of your expenses and planned revenue and see where those gaps in your cash is gonna be, because we all have them. No matter what size budget or operation you're running, we all run into those cashflow gaps that we either need to pull from a line of credit, increase our credit spending, cut some expenses, whatever that looks like, right? You got to at least have the ability to see in the future to know when that time is coming and have time to pivot, get there.
Mel Latu:What can we do before, oh no, I can't process payroll today. There's not enough in the bank.
Adam Larson:Yeah, there's not enough in the bank. When you and I first spoke, we were chatting a bit about the topic and what we were going to talk about. You mentioned something real time financials, you know, model, as opposed to that kind of traditional end of month, end of quarter reporting, which, you know, many people who listen to this podcast are, they're accounting and finance professionals. You know, their organizations probably do like the end of month they have to close each time at the end of month. So let's talk a little about the differences there and why that's important.
Mel Latu:Sure. So another thing, what's really fun about all of these things that I feel that we do, that we have changed and kind of disrupted the old industry and cycle of small business is that we, small businesses is operating at, things might be going really well, and in three weeks the whole thing could shift and you need to go get a line of credit. You need to be able to take your financials at any moment to be viewed, to see if you have any ability to get some working capital and things like that. And in the old way of, or traditional way of end and month end and quarter end puts a lot of people in a position where they're not prepared when they need to go. Part of being able to use those financials for the operation standpoint of driving change in your company, they have to be real.
Mel Latu:They have to be as current as they can be. So we believe in real time accounting. What that is for us is we are bookkeeping every single day. We are asking questions every single day if we don't understand an inflow or an outflow for two reasons. One, so that it gets reported correctly.
Mel Latu:And two, the opportunity for tax strategy. Maybe you don't know that you could actually do something different with that expense or revenue for a better year end. So we get that opportunity in the real time while the business owner's memory is still fresh, they're moving that money, but we also have the opportunity to break habits like, Oh gosh, no, you shouldn't have done it through that entity, or That's going to be at a taxable event. We're able to have the conversations again before you're at tax end, trying to figure out all these things and paying the extra fees for tax preparation when you could have cleaned as you go and be ready for year end. So real time for us is we're constantly bookkeeping, we're constantly asking the questions, and we're able to pull a reviewed P and L statement and balance sheet at any time.
Mel Latu:They're as current as last Saturday.
Adam Larson:That's yeah. So is that is that sustainable as a business scales and grows? Because it seems like that would be a lot if you're if there if you become more and more things that you have to check each time.
Mel Latu:Sure. And we have experienced incredible growth in five years. So, it's a great question because we had to adapt to that, right? We had to innovate some of our processes. We had to lean on some of the really cool software and innovations and different connections that are out in the world.
Mel Latu:I love Uncat. So accountants, if you have not heard of Uncat, U N C A T, it hooks up to your QuickBooks online and anything that you put in uncategorized or you can pick whatever category. If you put something in that category, it automatically notifies your client that you have a question for that income or revenue or expense, and they can answer it right there on their phone. They're not getting spreadsheets and emails and all that. And what's really fun about Uncat is you can answer it back on the accounting side and it syncs right back to QuickBooks.
Mel Latu:So you don't have to log back into QuickBooks. The client can attach the receipts, any kind of documentation. And my fun part, all of the accountants listening will be so excited, is whatever note that client communicates back to you, it stays in the general ledger memo. So a year from now, or if sometimes we find ourselves in a little bit of a dispute of where something should be categorized, right? And it's like, Hey, at the end of the day, we're not gonna argue it's your business.
Mel Latu:We're gonna put it there, but your tax preparer might have a different discussion, right? That note will always be there. So I love Uncat. And then we just make it to where, I'm a business owner too, right? Every process that we roll out, what makes it easy for my team to feed me my financials and that thing that we talk about all the time, know your numbers.
Mel Latu:Well, what are your numbers? Every industry, every company, their numbers are something different, right? And we want to pull those out and make them so exposed and highlighted in your financials, whether it be we restructure your chart of accounts, so that we're naming things in your language. Use those financials to drive your growth. Does that answer your question, Adam?
Adam Larson:I think so. Yeah, because the way you were first describing it, it made me think of, well, that's great for somebody who's really small and just, you know, trying to get things in order. But once things get in order, do you have to adapt that method to because it doesn't seem sustainable to do that every time?
Mel Latu:A 100%. So on our side, we utilize rules in QuickBooks and all the different technology features out to make it as quick as possible. And then our team's able to minimize the daily touch and then the monthly reconcile. It's actually quite more efficient because it's real time. I like to say clean as you go, right?
Mel Latu:If you pick up your laundry, instead of throwing it all over the bedroom, you're not fighting your children on the weekend to clean the room, right? So the sustainability has been in the process and the effectiveness of staying current.
Adam Larson:Gotcha.
Mel Latu:And we have found that you begin to train your business owners, right? They know what were the things that you start to ask. And some of that, the automation just starts to become more easy because the one offs and the things that you gotta ask about are starting to minimize their habit to commingle and use the wrong banks and cards starts to stop because you're harassing them nonstop to, Hey, you can't do that. So the scalability comes in using the innovative tools we have in the marketplace. Of our clients are QuickBooks Online.
Mel Latu:So, of our effective scalability is we only do QuickBooks Online. All of our staff is pro lead accountants, so we live and breathe one system. So it makes us more efficient as well. And we'll migrate you over if you call up and you don't have online. No problem.
Mel Latu:We'll we'll get you over to online.
Adam Larson:So when you're looking at forecasting, you mentioned how important forecasting is, and especially in this type of a a format. Are there certain key indicators that you're you're working with these business owners saying, hey, these are indicators that you should be prepared for, that you should always look at to make sure you know what the future is going to look like? And, you know, and how are you how are you training those training them, especially, you know, you come from operations moving into the accounting side, you know, how are you how are you teaching them the right language and getting the right words so they understand, especially for the non accountant?
Mel Latu:Great question. We use the cash flow forecast as the tool to drive operations. And what I mean by that is, as it gives you the ability to review your spending, a balloon ride up, right? We're busy as the owners. We don't have time to go sit and look at our general ledger.
Mel Latu:However, a very quick view every week of seeing on a linear view, what's going out of my bank account week to week to week to week, right? Gives you the opportunity to see Small links will sink the boat, right? You get to see, Oh, wow, look at all those YouTube Prime and Hulu, and why is all that stuff? It gives you a different view because if you look at your financials at the end of the month, that may all just be in subscriptions. It might all just be in software and apps, right?
Mel Latu:It might be all bundled in something that you might be too busy to drill into. But if you're looking at your cashflow on this linear review, every single week, money that's going out by category, why it's leaving, it's going to indicate you're gonna see an increase, right? Because you're gonna see that weekly expenditure. So if you're paying something every month and you're seeing it consistently go up, you've got a very quick, Hey, we need to call and re rate our insurance, or do we have too many licenses on this software? What changed?
Mel Latu:What happened? But the biggest the biggest help that cash flow forecasting is the revenue side, right? Because we all live and plan around the revenue coming in. So on a weekly basis, if you planned $50,000 to hit your account this week and only 35 came in, you need to that next Monday, that needs to be an operational meeting. Like where's that AR?
Mel Latu:Why did it not come in? Did it come in and it just didn't clear the bank till this week? Do we have a process in our billing department that we need to fine tune? Is there something over in, you know, whatever your, it depends what the industry is, right? Is there a step in the process before it gets to billing that we're not executing fast enough?
Mel Latu:It's able to just expose for you to where to dig in deeper and spend your time wisely, right? We're not just spinning our wheels. We've got a lot of things to do. So when it comes to indicators, I think it's just that you're looking at it very quickly, ten, fifteen minutes every week to see what's changing as it's changing. And then the second part of that is when you run your P and L every month, run it at month over month.
Mel Latu:Look at your whole year in columns of month and watch things change as your year's growing.
Adam Larson:I can't help but wondering, you know, how does that how does that how do you connect all of that, you know, that type of forecasting and looking at that to the budgets you've made, you know, because we all have to create those budgets and that connects to the forecast. You know, how do you how do those two connect in this method?
Mel Latu:So, Adam, the way budget and forecasting will work together on the template that we have created is when you're first setting up your forecast, your forecast is your budget. So I like to call the forecast our working budget, right? We have the opportunity every single week and month to analyze, are we spending what we said we would? Are we getting in what we said we would? It gives you a different pace and way to view that budget as you're walking through it.
Mel Latu:And it gives you the opportunity if you're in any kind of setting where there needs to be a vote for a new budget mid year, after first quarter, whatever, you have that trend. You're watching it. When fuel went up dramatically overnight for a lot of industries that have fleets, right? You could quickly see how much of a change that was making in their weekly budget, right? So the budget piece is, that's how you start your forecast.
Mel Latu:Your forecast is your budget. And every week, the secret sauce and the discipline of reviewing and reconciling that forecast, you are reviewing and editing your budget. When
Adam Larson:you chat with other finance and accounting professionals and kind of explain what you do, do you ever get pushback saying, oh, you're not you're not are you still holding true to like traditional accounting principles, you know, or is it more like a, hey, you're embracing it and doing it from a different perspective, but still keeping your right internal control, you know, processes in place?
Mel Latu:Honestly, we have the best CPA partnerships. It's where 90% of our business comes from. Do the dirty work and we understand both sides of the language. There's not a lot of pushback and it's a really beautiful embrace actually, because when me and my team get to clean up some books and then get on the call to start the tax preparation, when you're able to have the conversation where you clearly understand where everything is and why it's there, and it's a different relationship, right? And then they're very excited.
Mel Latu:All of our CPAs are excited about us pushing the narrative of forecasting because who better, who does it, who would not love for our clients to be prepared and ready for the end of the year. Right. Or not be in shock at the different scenarios that happened by quarter four, because you didn't do all the things you should have done for the year. So I can't think of any pushback. Some people cash flow in a different theory, different pattern, different formats.
Mel Latu:There are some companies, and then some of our clients that we cash flow forecast for that don't necessarily need to do the discipline or the process of weekly because cash flow is good, available liquid money is great. However, they want to hire more staff. They want to open a second location. So the tool starts to work in their benefit that we scenario, and we plug in all these things they want to do and we see, does it work? Or are they going to go try to get an SBA or a large bank loan that's gonna want a three to five year, ten year forecast?
Mel Latu:And every single business owner goes, what is that? I've never done that before. Right? So the firms that we work with that know that our clients are already prepared to one, be lendable. They're already ready to go to the bank with clean books and that we understand the language.
Mel Latu:There hasn't been a lot of pushback. One thing that I can tell you is we like granular chart of accounts, right? Because again, I want them to be operational, intuitive. So I need it to speak to the ops manager. I need them to speak to the doc supervisor, right?
Mel Latu:Like whoever needs to know that piece of it. So the only pushback we might have is, holy cow, that's an eight page P now. We're like, no problem. Let us collapse it for you and we'll shrink those and just give you the overall category. So other than that, no, it's been a really good working relationship that we don't want to touch taxes and they don't want to touch bookkeeping and accounting.
Mel Latu:So it's a really fun relationship.
Adam Larson:Yeah, it's it it it really sounds like it is. And because you're putting everything in the right place, you might be using slightly different names or things or slightly different methods. But because it's working and everything's lining up, why would somebody be against it anyway?
Mel Latu:And then we get to have the really good discussions that both parties get to learn something, you know, especially when we're doing our real estate investor clients. You know, there's so many different ways, depending if they're flipping the home, holding the home, selling the home, right? Is it capital improvements? Is it can we go ahead and expense it? All those different elements, we can explain why, like we already know, we're talking to this client all year long.
Mel Latu:We know for six months it was rented out. So we needed to book some of the expenses for part of the year differently. And we can have that discussion why we went balance sheet or profit and loss. And again, it's been very appreciative that understand the strategy and the why, and now they feel confident to take those books and just do their part, their favorite part of the job and the tax preparation. Without all the, you know, get to be the liaison too, right?
Mel Latu:Those emails back and forth from your tax professional can just be overwhelming, especially if that's not your daily language, right? So it's a very fun dynamic to be that third person on the email and be able to help navigate those conversations with the ultimate goal of education and impact. We want this business to grow. We want them to understand, and we wanna make sure that as the accounting team that we've circled around him with their CPA and our team, that business is moving in the right direction. We don't want to just be recording numbers to just be recording numbers.
Mel Latu:That's super boring.
Adam Larson:Yeah. So, you know, with all the work you've done with small small businesses and helping them improve and improve their books and stuff like that, Do you where do you kind of see things moving in the future, especially with the markets going up and down with so many different industries with uncertainty and, you know, so many choices, you know, especially in The U. S, you know, the government's making a lot of different interesting choices. And so, you know, where do you kind of see things going as we kind of look toward the future of the industry?
Mel Latu:Truly believe I'm so passionate about the force of small business in America. Are, we fuel local economies, jobs, impact our communities. And I feel that it's something that it is the most important at this point in the world that we must forecast, we must plan. Eighty two percent of businesses fail due to poor financial foundation. And the fact that all it takes to shift that and start seeing more of a success rate is to teach and to make it fun.
Mel Latu:I like to say we're energizing financial management. We want you to be excited. Don't be scared. Release the shame of bad bookkeeping or bad financial management. It's almost like if I was your personal trainer and I'm looking at your food log, I gotta see what you're really eating because you're showing up for the workouts and you're not getting toned, right?
Mel Latu:Let's dig in and look at it, but it's okay because everybody does it. Everybody, you don't know what you don't know. When I think about the future of business and finances, one of the biggest tools is planning ahead. And you a tool to forecast, to plan. The ability to see the future in your business is leverage in so many different situations.
Mel Latu:And it's you have the tools right in front of you to really grow whatever your goal is, right? Not every business has to be Grant Cardone and go 10X and be a billionaire. Sometimes a successful small business is you can provide for your family, provide a really cool workplace for a couple of people and give back to your community. So I think it's really important that we just find out what our financial goals are as the business, right? And then forecast and plan and be able to pivot.
Mel Latu:I think relationships are gonna matter more than ever in the upcoming years when it comes to negotiating with prices and even hiring people, right? We've gotta take care of people differently because we're an environment where you wanna find that top person and you want to retain them, right? So that's how I see it. Planning, being able to pivot and just having all the tools in front of you so that you are operating with facts and not feelings, because it's really easy to run our businesses on how we feel.
Adam Larson:Just
Mel Latu:remove all those fields and look at the black and white data and you'll see see that margin move a lot faster than it would.
Adam Larson:Awesome. Well, Mel, I just want to thank you so much for coming on the podcast. Thank you so much for your insight with our audience. And it's just been great chatting with you.
Mel Latu:You as well. Thank you, Adam.
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