Photos by Hillary Ehlen
BNG has been on an upward trajectory ever since it was founded by Brady Nash, Tyler Buechler and Ryan Goodman while they were students at NDSU. The business solutions company, which provides payment processing, point of sale technology, premium website development, marketing services, and automated accounts receivable software came in at number 2,779 on the INC 5,000 list in 2018. Also, BNG just built a new corporate headquarters in Fargo that is a tribute to its hard-working nature, culture and continued growth.
We wanted to see what they’ve learned in the years so we had Steve Dusek, the President and CEO at Dakota Business Lending, sit down with Jason Gingerich, the Chief Financial Officer at BNG to talk about what other financial lessons small businesses can learn from BNG’s success.
Chief Financial Officer at BNG
President and CEO at Dakota Business Lending
Steve: When you know you need to hire an employee but don’t yet have the revenue that you think you need in order to support an additional position, how do you adjust, evaluate or think through this?
Jason: Sometimes a business isn’t quite ready to hire needed employees because of cash flow reasons. So how do you solve that problem? Well, you can either wait for the cash flow to pick up to allow for employee growth or you can attempt to procure funds. A business should determine which route they are comfortable with. In order to go with funding, it’s important to demonstrate that by hiring additional employees a business can grow at an even faster rate, pick up additional revenue and serve the debt.
For example, we have been in both situations where we have waited for revenue to pick up and then hired out of operational cash flow and at other times, we have procured financing because there was a major workforce need that, if satisfied, we would be able to grow at a faster rate.
In order to obtain financing, you have two options. First, you can sell a portion of the business to equity investors and take on venture capital to get money. Secondly, you could try to acquire traditional lending through a bank or line of credit loan. As a small business owner, you must ask yourself the question, “Which type of funding is right for me?” There are pros and cons with both equity and debt financing. For example, with equity you’re typically giving up control in the business but may gain an experienced partner and funding that could help you grow faster. On the other hand, with debt, you can maintain control.
Another advantage of debt financing is that you can write off the interest expense, saving tax dollars, as opposed to the nondeductible nature of equity dividends/distributions. That said, you may not be able to access the level of financing needed under a debt structure versus an equity series round of funding. In either case, the small business owner must know its business, demonstrate its potential for success and articulate both past and future metrics, all while answering the question, “Why is my business a good investment?” This may involve answering other important questions such as: what is my projected revenue growth over the next five years? What is my customer attrition rate? Who is my target market? How is my product differentiated? What is my customer acquisition cost? What is the lifetime value of my average customer contract? In the end, you must know your business and its potential for success.
Steve: You mentioned that you need capital for growth and you were making a decision between traditional financing, equity partner or someone who may have ownership. What were the decisions made to not use equity capital and try to go it on your own?
Jason: Ultimately, it was up to the owners and their unwillingness to take on a partner that’s not familiar with the culture and their friendship. Brady, Ryan and Tyler have been friends for years and bringing on somebody else, while giving up control by selling equity, could disrupt their relationship. It really came down to control. Currently, our strategy is to leverage debt financing to continue to grow the business but that’s not to say that there isn’t the right equity partner in the future.
Steve: So you recently moved from lease space to owning your own space. What kinds of things did you evaluate and when did you realize it was the right time to move to a space of your own?
Jason: For us, a big issue was that the space that we were leasing wasn’t big enough for us. At the time, we had doubled in size in two years, going from 35 to 70 employees and so the space simply wasn’t big enough anymore. For years, we have always wanted to have our own building and really build it around culture. We wanted to do it right and build a building that would represent who we are and how we can better serve our clients and partners. That said, if you’re a business owner and you’re evaluating whether to buy versus lease, it starts with your desires. If cost is a big issue, then you might want to lease until you have the funds to build your building right. Once you build, it’s important to ensure the building defines who you are as it will impact your people, culture and your community.
Steve: I just worked with a business in Fargo that is a professional office and his father said, ‘Look, I’ll manage the building and construction. You just see patients because that’s what you do well and it brings in the cash and cash pays the bills.’ You give up a lot of that opportunity cost by focusing on the building. In your role as the Chief Financial Officer, how did you balance that with the owners who probably would have wanted to spend all their time and energy focusing on the building?
Jason: Yes, if you’re building, be aware that this could be a distraction from your day to day operations and you may be giving up time that you could be working on in the building versus the business. However, for me, it always comes down to cash. Being the numbers man, at the end of the day, did we have enough money to build the way we built despite giving up that opportunity cost? If the cash is there, then I would advise someone interested in building to get it right because the building may have long term benefits that quickly pay off the opportunity cost of focusing on the project. That said, be aware that you don’t always need everything to be perfect right away. To a certain extent, we’ve had to do that in our building. There are certain things that we said, “It’d be nice to have but we don’t need it today. We’ll do it further down the road.”
Lastly, be aware of your building projections as they most likely will eclipse what you originally projected. For example, we surpassed our budget by a certain number of dollars that we had to pay out of pocket. Be aware of this and plan around it so that you won’t put yourself in a bad situation as you’re putting together your financials. For us, we were able to lease much of what we had to pay out of pocket. Therefore, the lesson for a small business that’s growing and considering building, is that be prepared to have to come up with additional funds that you didn’t necessarily project, add a buffer to your projections.
Steve: While not directly tied to finances, how big of a role does a social media presence mean to small businesses today? How do you place a value on that and how important is it?
Jason: It’s an interesting question and I think it depends on the industry that you’re in and what kind of business that you have. For example, in our company, we’re providing business solutions and an automated payments platform. We sell our services and software nationwide and other parts of the world, therefore marketing through word of mouth isn’t going to get you there. That said, businesses should explore all avenues. For example, we have three major avenues when it comes to marketing and determining our budget: advertising and social media, call team and trade shows. When budgeting, we evaluate costs and revenues from each of these three avenues.
Steve: Do you do anything specific to track your results you’re getting from the costs and marketing? How do you track all the marketing expenses and see what’s valuable for you as a small business?
Jason: We use various tools to be able to track how many leads we are getting per marketing avenue, but it mainly comes down to leads generated per avenue, cost per lead and revenue generated per avenue. A business really needs to get into tracking the data to see which marketing strategies produce the best ROI and then make smart decisions based on the data.
Also, a business owner needs to know the length of their sales cycle. From the time and point of a first introduction to a prospect, how quickly does that prospect then turn into a paying customer? We found that ours is quite long and it usually involves utilizing a combination of the aforementioned marketing avenues. The trade show/face to face conversation usually has the best conversion to sales rate, but it’s also the costliest. That said, as a business, we can’t be afraid to try other avenues of marketing in order to drive down cost and increase our close ratio. Overall, it’s a numbers game, track what you are doing and then track the results to see what works and what doesn’t.
Steve: As far as marketing goes, that’s such a crapshoot for a lot of businesses and they don’t have a good understanding of it. From a financial perspective, is there a percentage of the overall budget that you are allocating to marketing or how do you address that?
Jason: It’s really based on the success that we’ve seen in each marketing avenue. Currently, social media is our cheapest cost. We market on Facebook, LinkedIn and other major social media platforms. Our cold calling team operates by procuring marketing lists, scrubbing those lists and then calling on potential clients that could benefit from our software. Lastly, we attend trade shows that we feel represent our major market. The frustrating thing is when we’re setting a budget, it’s a challenge to determine which marketing avenue contributed the most to a win – a potential client becomes a paying client. Usually, it’s a combination of the three avenues. For instance, perhaps you’re our client, and before you became our client you saw our presence on social media, read our blogs, received our emails, subscribed to our podcast, received marketing calls from our team and yet the first time you saw us was at a trade show – which is really how you got to know us. So which marketing avenue was most effective? Well in this case, it was all of them! Therefore, when we create our marketing budget, we take this into consideration. We start by asking questions and then tracking data. For example, we may cut a trade show from our budget if that trade show has historically shown poor results. We may decide to allocate funds towards different call lists if we are not receiving results in a certain market list. We may reallocate funds towards a particular social media blast as opposed to an underperforming blog. To conclude, the data is key. We start by tracking which marketing effort is most efficient and produces the most wins. After this, we allocate budget dollars to the appropriate avenues based on what the data tells us.
Steve: You said you had a long customer acquisition cycle, so accrual becomes probably more important because it can take 18 months to land a customer, but yet you’ve got a lot of costs up front. Does the difference of the cycle and the customer acquisition matter?
Jason: Yes, for us, our acquisition cycle can be rather long. For instance, we have a setup fee that our customers pay up front for our product, but they might not install our software for another three to five months. So, what do you do with that setup fee and the upfront costs that we’ve put into our software? Because we operate on an accrual basis of accounting, we have to recognize the setup fee as unearned revenue until our software is paid – at which point we recognize the revenue as earned. However, the costs of installing and developing our software are recognized in the period in which they were incurred. Thankfully, once the product is setup, we bill the customer on a monthly basis and begin to quickly recoup the upfront acquisition costs. The lesson for business owners is to know your acquisition and retention costs of your products. For us, it can take us, on average, about 10 months to recoup the cost of acquisition. Of course, the question then becomes how can you begin to decrease your acquisition cost and lessen the time to recoup it? The answer may be a combination between finding the ideal price for your product, while offering it at maximum efficiency, which lowers cost. To do this, start looking at areas in your business which supports the customer from an acquisition level, are there areas where you can operate more efficiently? Also, look at the price of your product, are you charging the most effective price? What is your market willing to pay for the value they are receiving?
Steve: How often are you looking at your financials?
Jason: I’m looking every day and I love it, but that’s my role. As a business, we’re looking at our financials on a monthly basis – any longer and you may be missing important financial information as the financials are still the number one metric that you can use to gauge the overall financial health of your business.
Steve: Are you comparing it to your budget for that month? Are you comparing it to the same month?
Jason: We’ll make multiple comparisons, we compare month over month, year to date versus last year, month versus budget, etc. A key metric in our businesses is gauging our MRR (monthly recurring revenue) and looking at the change from the previous month. We’re also comparing it year over year, month to month. We will also do this process for total revenue, and by doing this we can determine the growth of the business to see if it aligns with what our projections are.
If we are not meeting projections, we can begin to ask questions as to why that is. There may be a logical explanation and there may not be. In either case, a business owner needs to be aware of the situation so as to make tweaks in order to meet goals. Start asking questions about the financial statements as well. Have your expenses grown? If they have, have your total revenues surpassed the growth of your expense? If they have, you’re in a good position. If you have a finance person, you can have them run some ratios and look how much certain expenses grew as a portion of total revenue, you can also use ratio analysis to judge the efficiency of the business. This will allow you to really understand the overall health of the business, especially if you’re looking at these numbers on a monthly basis and analyzing the trends over time.
Steve: You mentioned cash was really critical, so you’re looking at cash flow statements and analysis of cash flow as well. Most small business owners aren’t as experienced about the cash flow statement and understanding that. How would you suggest they go about learning to use a cash flow statement?
Jason: Yes, the statement of cash flows are extremely important in any business. The goal of any for-profit business is to what? Profit, of course. But at the end of the day, if you don’t have the cash to support your daily operations and you are not able to access cash through one of the methods we discussed earlier, your business will fail. Therefore, a business owner needs to be aware of the cash flow statement. You may say, ‘We profited $20,000 last month and yet our cash decreased by $20,000, how did that happen?’ That’s a common question that can be answered if one has knowledge about the financial statements and how they relate. Cash related items sometimes directly affect the balance sheet and don’t immediately affect profit/loss. For example, using the above scenario perhaps a customer was invoiced $10,000 and has yet to pay that invoice, meaning that the revenue has been recorded but the cash has not yet been received. Also, let’s say you bought $10,000 worth of equipment, meaning that cash was paid and the asset was placed on your balance sheet, with only a small amount, depreciation of the equipment, affecting your profit.
Not every small business has access to a financial statement analysis, so what should they do? I would advise a small business owner to educate yourself. It doesn’t have to be anything complex, but at the very least try to understand how the profit and loss statement, balance sheet, and cash flow statement tie into each other. To conclude, if you don’t have a basic understanding of the financial statements ask someone who does to teach you. You should be able to, at a high level, look at the financials and determine the overall financial health of the business. Some areas to consider are: revenue and expense trends, gross margin, net operating income (income before taxes, depreciation and other noncash items), current ratio (liquidity), accounts receivable turnover (efficiency) and the operating section of the statement of cash flows (determines the amount of cash generated or lost due solely to the operations of your business).
About BNG Team
BNG Team has four different solutions they offer.
BNG Payments: A credit card processing company that assists merchants with payment technology, credit card processing, gateway, electronic check and payment integrations with company CRMs.
BNG Design: A digital marketing and web design agency that helps small business owners receive an ROI with their company website and digital marketing efforts.
BNG Point-of-Sale: A premier source of customized business solutions for point-of-sale systems, touch screen tills, electronic cash registers, inventory software and additional services.
ConnectBooster: A software that makes it easier for your clients to pay you. This software works to solve AR issues, accounting integration, CRM integration and a payment portal for your customers.
About Dakota Business Lending
Dakota Business Lending’s mission aims to “provide financing solutions through collaborative partnerships in a supportive and creative environment to grow the economy and create and preserve quality jobs.” They will work with your small business to learn your company and assist you in finding the best loans available to help you grow your business.