Q: All businesses have expenditures. How you determine the value of an expense? 

Rodney Davis: You can’t outright assume that an expense because of its size is good or bad. What you have to understand is when I incur that expense, what are the outcomes that will be derived from that expense? Albeit, whether that be incurrence of that expense might set a precedent that could cause a problem somewhere else. Is that expense going to generate revenue in a day and a month and a week? Is a dollar spent going to generate $10 of revenue? Is $10 spent going to generate a hundred dollars in revenue or is $10 spent going to generate $8 in revenue. 

The disconnect that sometimes happens that finance is meant to bring to the table is because they are supposed to understand the knock on effect of all expenditure decisions to actually give an accurate representation, or at least a forecast of what that truly should translate into, based on all the inputs from sales, from marketing, from creative, from technical and from the banking or so, the source of funding, they’re supposed to be able to say, if I spend that dollar, yes, I can translate that back into $3 within X amount of time and therefore, that’s either acceptable or not

Q: Is determining an expense a subjective call?

I think it’s really important that the finance person resist offering their subjective opinion on these things. They should first present the objective, get the objective understood, have the conversation objectively and then they’re welcome to weigh in their subjective opinions. That advice then allows them to look at the results or the, one of the best things that we do for clients is we project. So, we take those metrics, we look at the historical results of those metrics combined, and then we take those exact same metrics and project what would happen if different components of those metrics where to change and show the entrepreneur if you’ve got more sales leads and this is your conversion rate, this is what your revenue would be. One of the tests I do with a lot of entrepreneurs is I take those metrics and I say, tell me what you think the outcome would be, change the metrics and what do you think the outcome would be? And many times they think they know the answer and instinctively they’re typically in the right direction. The advice allows you to be a bit more precise in your prediction, and a bit less invested in those predictions emotionally. 

Q: How do you determine what expenses to cut, especially in challenging times?

My approach, when you are faced with a series of circumstances,  where a great many of them are outside of your control, step back. Identify what’s within your control and focus on that. Don’t try to change what you can’t change. So, it takes a whole lot of control and discipline to recognize what you actually have the ability to change. So, I say to entrepreneurs, when you’re in survival mode, don’t try to rewrite your business, understand which parts of those things that are affecting you are outside of your control, try your best to understand where that control lies.

So, whether that’s protecting your existing cash reserves, fortifying your product or service to be the best that they can be, wring out efficiencies that you’re able to wring out of your product, serve your clients better for those clients who still are doing business with you, but focus on the things that you have the ability to control. 

Q: what happens when cutbacks affect the mission or even culture of a company?

Changing your core is changing your business and so you’ve got to understand like, so the great example is the metamorphosis of Netflix, from being a mail order video business. They quickly realized that they could change the way that they do the exact same essence of their business. The mission is still the same, convenience, view movie or content when you want to view it, where you want to view it and when you’re finished, it’s not difficult to get rid of it. It’s the same mission, they just translated how they did it.

So what I say is, they pivoted without changing their core. They didn’t change their original reason for being. They didn’t change their purpose as an organization, but they pivoted to take advantage of a new way to deliver the promise that they gave to their customers. So don’t change your promise, you know what I mean? Pivot to deliver that promise in a way that’s suitable for the current circumstance.