How to Scale a Service Business with Financial Discipline with John Morris

Welcome to Milestone Moments, the show where we explore the journeys that lead to success. I'm Sheila Slick, your host and founder of Five Milestones. In every episode, we will bring you insights from the minds of entrepreneurs, leaders and experts who will share not just their expertise, but the milestone moments that have reshaped their journeys and led to significant achievements. So if you're looking for motivation, you're in the right place.

Subscribe now and discover the milestones that mark the path to success. Welcome to another episode of Milestone Moments in Business and Leadership. I'm your host, Sheila Slick. And today, my special guest is John Morris.

John is the CEO and founder of... fiscal advocate, a firm dedicated to helping professional services companies grow profitably through finance -first strategies. John built his previous agency from $10 ,000 to nearly $40 million in revenue before exiting successfully, and today he partners with CEOs to transform how they manage growth. They combine financial discipline data -driven forecasting, and scalable business models.

Welcome to the show, John. Sheila, thanks so much for having me here. What made you do what you're doing today? Why did you exit this company that we mentioned in the introduction?

Tell me a little bit about that. Yeah, so, you know, I grew Rise from zero to almost $40 million. I was 16 years in. And to be honest, my original exit strategy...

was I was going to die one day. You know, I really did not plan on leaving or exiting the business. But then life happens and I started to form a family. All my wealth was all of a sudden tied up into this one, you know, non -liquid asset.

And I decided I wanted to diversify just for like safety and for family purposes. So that was one reason. The second was one of my daughters was going through a hard time and I wanted to be there to support her. And I felt I needed to be around my family a little bit more.

And the third one was every year, right around July, I start planning the next year. And I have like my favorite business day of the year is the first business day of the year. And I call it game day. And I'm always really excited for game.

And in 2019, I had a great plan for 2020. The problem was it was the exact same plan as 2019. I just didn't feel challenged. It was the first time where I just wasn't that excited for game day.

And so when you took those three reasons, I thought it was time to exit. And so I chose to leave Rise. And so I sold it. And on April 1 of 2020, I officially stepped down as CEO and then started Fiscal Advocate pretty much right away.

Wow. So what's your mission with Fiscal Advocate? I personally love connecting with other entrepreneurs and helping them and seeing if I can help them achieve the same success I had at Rise, greater success, stabilize their finances. A big secret to Rise's success was our financial acumen.

And so it's just a chance where I get to talk to entrepreneurs every single day. help them with real world problems that, you know, keep them up at night. And so it's just been a passion of mine. You know, it's funny when I sold Rise, my successor, the new CEO, said, he's like, John, you know, the one thing I'm disappointed about is that you didn't do anything fun.

You started this business right away. And my response was. Well, I wake up every single day loving what I do, loving the people I help. So I feel like I am having fun.

You know, it might not be fun in the sense of like flying across the world and doing like really cool things. But I get to talk to people I love, work with people I love and help people. So, you know, to me, it's been a big success. With all of this experience and these entrepreneurs or CEOs that you help, what would you say is the biggest mistake that you see they make when we talk about profitability?

So I'll break it up into a few different things. So the first one is if you know how to organize an income statement properly. And I know that probably half your audience just fell asleep off that comment. But if you know how to do it, it tells a story.

And the story tells your predicted outcome in a really easy fashion. So there are very specific benchmarks, and I'll just use the professional service industry as an example. You get 50 % of your revenue to deliver for your customers. You get 30 % of your revenue to invest in your business, and you get to keep 20%.

And so if you just understand those three numbers. then you can start to telling right away, I'm overspending or I'm underspending in each one of those specific areas, and that can guide you. And so oftentimes people will come to me, you know, I just was looking at a company last week. All I know is that their revenue was 5%, or sorry, their EBIT or their profit was 5 % of their revenue, and it's supposed to be 20%.

The other thing I know is that their payroll, was 84 % of their revenue. It's supposed to be 55%. So I can tell you that they have too many employees or they're overpaying their employees and they need to right -size that. But what I can't tell you is where they're overspending.

So are they spending too much on sales and marketing? Are they spending too much on delivering for their customers? Are they spending too much on their back office? And so by being able to reorganize this, We'll be able to tell them in a much more detailed way, you know, you're actually not spending enough on sales and marketing.

You're supposed to spend 8 % of your revenue. You're only spending 3%. But the problem is that you are over delivering for your customers. Maybe not the word over delivering.

You're not delivering for your customers in a profitable enough way that allows you to make money. And so those are kind of the key drivers. The second thing that I see, and this is probably a bigger one than the first one. is once I give the information to somebody, oftentimes that means you need to act on the information.

And acting on that information oftentimes is firing somebody that you love, that you care about. You know, like I just gave an example. Someone's at 84 % of their revenue. They should be at 55%.

Well, that means that you need to cut a lot of payroll. And those are people you care about. Those are people you love. Those are people you've been in the trenches with.

And that's not fun and that's not easy to do. And so I find that, you know, this is where you really have to step up as a leader and make those tough decisions for the good of the entire company and for the good of the rest of the team. So when you said that and you said it twice, in my mind, I'm thinking, but they can also increase sales if they would want to keep all these people so that the percent of the expense of that payroll goes. down.

So that could maybe be a strategy. So here's what I'd say. Let's just say that you're spending 70 % of your revenue as opposed to 50 % of your revenue to delivery for your customer. So you have a 30 % gross margin as opposed to a 50 % gross margin.

And I get this all the time. The easy way to do this is that you could grow revenue and grow into fixing this problem. So the first thing I look at is, well, what's your current pipeline? You know, if you don't have anything in your pipeline and you think that you're going to grow your way out of this, you know, then I think that you're just holding on to cost, kind of praying that something happens that probably is not going to happen.

You can control cost instantaneously or almost instantaneously. Revenue is something that you hope that you can do. But your sales plan has to work. Your marketing plan has to work.

There's generally a good pattern. You know, I know exactly how many customers I won this year. I know exactly how many customers I won the year before. I'm probably not going to triple the number of customers in 2026.

You know, like there's a pretty good pattern to how many customers I win on a regular basis. I would love it, but it's probably not going to happen. And so I try to set people in a reality of, well, okay, if we want to grow our revenue into this, what's the likelihood of that happening? And, you know, from there, you know, I do have clients where their pipeline is amazing, their sales are amazing, and they might be a little bit over and I feel very comfortable that they could actually grow into fixing this.

Most of the times, though, that's not the case. This is like a doom and gloom interview. I apologize. I'm still trying to find the optimism.

There has to be a different way. I mean, the optimism. And again, that's a big expense. Well, if you're at 84 % just in one of your expense categories with that revenue, I mean, yes.

Look, this is the optimism. The optimism is when you are a good leader and you make the tough decisions. you stabilize your business, you can finally put yourself on a path to growth. I have a client this year that was losing a million and a half dollars last year that's going to make a million and a half dollars this year.

Okay, and they are growing. So they did need to make tough decisions. They did need to let people go at that moment in time. They are now paying down debt.

They are now sleeping better at night. They are taking care of the 95 % of the team that got to stay and making sure that they're at a good position. Because if you're not on a stable ground, like if your financials are in bad shape, you not only lose sleep, but guess what? Your employees lose sleep because they don't know if this business is going to survive.

Like you might think that you're hiding it, but people typically know what's going on. And so. You know, you need to get yourself on stable footing. And then once you're on stable footing, then you can start making the investments back into the business again.

You know, the conversations with that company I just was telling you about last year were, they weren't fun. Like they were emotional. They were hard. The CEO was exhausted and stressed.

This year, everybody is happy there. Like they're talking about investing in AI and new marketing initiatives. And, you know, they've... They did the hard work that allows them to now go and put their foot in the gas.

The numbers don't lie. Yeah, it tells a story like it's just, you know, but you have to have courage. Like, you know, that's the challenging part of being a CEO is, you know, the numbers tell a story and you have to decide if you're willing to accept the story. and make the decisions based on what the story says.

I'd like to talk about Engine BI. This is a proprietary budgeting and profitability tool that you and your team have created. Can you tell us a little bit about that? Absolutely.

So it's basically a storyteller. You know, the best way I put it, when you think about accounting software, so QuickBooks or Intact or NetSuite, they're all backwards looking tools. They've told you what you've done. what Engine BI will do is it'll tell you what's going to happen in the future to the best that we can predict.

And so what we're trying to do is make sure that we know what your revenue is going to be. We know how much you're going to spend to service your customers. We have a really good sales and marketing plan. We have an innovation plan.

And you can see the percentages that you're going to spend in each one of these areas. And that will guide you. in terms of, do you have a good plan? Everybody should have a budget and that should be a budget that is attainable, is a budget that should have really well thought out methods for spending your time money.

And so that's what that tool does. So if I'm understanding correctly, it sounds almost like the projections, but you're delivering more than just numbers in a spreadsheet. You're also delivering reports. So is it pulling the information?

When you mentioned QuickBooks or other accounting software, they're normally integrated with your bank and your... Yeah, so it pulls directly from QuickBooks. But once again, remember, QuickBooks will pull in actual transactions that have happened. You know, but let's just use Q1 of next year.

So I want to know, like, nothing is more important than are you going to make money over the next three months? And are you going to spend your time and money intelligently over the next three months? And so it gets fairly granular. It looks at all of your clients by line of business by month, what your revenue is going to be.

And it looks at what all your expenses are going to be. And it's going to tell you, you know. how much your profitability is going to be over that three -month period and what percent of your revenue that profit is going to be. So it is the data that it's pulling in, you input into the software, would be your client.

So it's looking at your current pipeline, perhaps your estimates that you have out there, your pending invoices, and based on that, it's going to analyze it and predict. So, yes, but it's up to you to help maintain the data. You know, so I'll give you an example. Let's just say you go hire today a brand new employee.

QuickBooks is not going to have that information anywhere. Right. It's up to you to put in that, hey, I just increased our expenses. Let's just say this person's ten thousand dollars a month.

I just increased our expenses by ten thousand dollars a month. Well, you now need to go into the software. You need to create a new row and say, new employee, put the person's name in, whatever their department is, put in the $10 ,000 a month. And you're going to see that your profit just went down by $10 ,000 a month.

And so now you can look at your budget and say, I don't know if we can afford that person. Our profits are going to be too low. We might have to push that person off. And so it allows you to make really good decisions on.

You know, are you OK with the profitability you have? But the other thing that I'm really trying to get into is in order to scale your business, you only have time and money. And if two companies do the exact same thing and they're going head to head and one person spends their time and money more intelligently than the other person, they're most likely going to grow. They're most likely to have more profits.

And so. I'll give you an example. At a client of mine, he literally wanted to do exactly what you just said. His profit margin was too low in terms of delivering for customers, and his strategy was to grow his way out of the problem.

And when you look at the marketing dollars that they spent, they had a marketing budget of $400 ,000, and they hired a chief marketing officer for $250 ,000. based on that total marketing budget, that is just way too high of a cost of a person relative to their total marketing budget. Because now there's no money to actually spend on marketing. They've spent it all on that one individual.

And so they're not growing their way out of the problem. And so it allows you to then spend time analyzing just the effectiveness of how you're spending your dollars. And are you spending them intelligently? Are you getting the returns that you're looking for?

So is Engine BI just for service -based companies or can a manufacturing company use it as well? It is designed for service -based companies in the sense that the benchmarks that we recommend are specifically designed for service -based companies. A manufacturing company could use it, but a lot of my insights of like, you need a 50 % gross margin, for example. I have no idea what the gross margin for a manufacturing company should be.

I'm not an expert on inventory, like how much inventory you should have. So there's elements that I think that would be missing. But the principles of how you do budgeting and forecasting would hold across all industries. All of your non -client related expenses, believe it or not, only fit into four areas.

It's sales and marketing. It's your back office, so HR, legal, corporate IT, general admin, and finance. Executive team and R &D. There really is no other major area of spending.

And so, you know, if you want to grow, you need to spend money on R &D and you need to spend money on sales and marketing. It's just really hard to grow if you don't do that. And... You know, I would, I'd give as an example, you know, competitors would come up to me all the time, generally substantially smaller than me when I was at Rise and ask me how I did it.

Like, how was I able to grow when no one else was able to grow? And I'd always come back to them with a question. I was like, well, what percent of your revenue do you spend on sales and marketing? And I'd oftentimes get the exact same answer.

It's like, oh, we don't spend anything in sales and marketing. It's all word of mouth. I was like, well, then how come I'm the only marketer that believes in marketing? You know, like if you don't invest in building your brand and you don't invest in growth, you know, you're probably not going to grow.

So the tool will be very helpful for giving you guidance in those specific areas. There will still be some gaps, but it would definitely provide guidance that would help you make better decisions to spend your time money more intelligently. So before we wrap this up, what would be one key takeaway or a lesson that we can walk away with and take action today? So my first recommendation is whatever your industry is, is learn the benchmark numbers.

Learn what a proper gross margin is. Learn what you should be spending in sales and marketing, what you should be spending in R &D. That benchmark data most likely exists. Then make sure that you can match up how you're doing against those benchmark numbers.

So that'll be the first thing I'd recommend. The second thing that I would recommend is every job has a worst part of the job. In my opinion, being a manager or CEO, the worst part is generally that you have to fire people that you love and you care about. Make sure that you can do that job.

Because if you can't, It doesn't matter what decisions need to be made. You're not going to make those decisions. And I want you to make decisions with a really crazy sense of urgency because that sense of urgency is what's going to help you scale and grow. Well, thank you so much for joining me today, John.

Absolutely, Sheila. Thank you so much for having me. And thank you all for tuning in to another episode of Milestone Moments in Business and Leadership. Until next time.