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Argel Sabillo: [00:00:00] I feel like in the U.S., it's it's always like you get paid more. You work more. And then also the mentality is like, if we pay you less, you still work more. So it's just always work more. So I think we have to put that in perspective to that, you know? To date, we've already, in the four years that we've existed, have already invested $450,000 in the Philippine economy. Like, I feel so good being Filipino to be able to do that right and create jobs.
Blake Oliver: [00:00:27] That's amazing. Want to learn what sets LiveFlow apart from the thousands of other QuickBooks Online apps? Do you want to learn how LiveFlow saves time for hundreds of accountants and bookkeepers? Want to learn how LiveFlow helps accountants and bookkeepers to use LiveFlow successfully in their firms. Stay tuned to hear more from our sponsor LiveFlow later in the episode. If you'd like to earn CPE credit for listening to this episode, visit your mark CPE. Com Download the app, take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode. Hello, everyone, and welcome to another episode of the Earmark Accounting podcast. I am your host, as always, Blake Oliver, CPA. I am excited today to be talking to Argel Sabillo CPA. Offshoring. Outsourcing is a very pertinent topic in the accounting profession these days. It's been something that has been only available to large firms in the past, firms that had the ability to set up offices offshore. It takes a lot of resources to do that. But now there's a lot more options there. There are more ways that small firms can work with people outside of the United States. And this came to my attention because over the last couple of years, especially during COVID, as firms moved remote, more and more firms became comfortable with people being not in their office, a physical office and working remotely. And when you go remote, you might as well get rid of those boundaries of country. And so this is really changing the profession. It's possibly a solution to the talent crisis that we have. That's why a lot of firms are moving this direction. So Argall, Sybilla, thanks for joining me today and i'm eager to talk to you about this exciting trend.
Argel Sabillo: [00:02:20] Thanks for having me, blake. I'm excited. Let's get started.
Blake Oliver: [00:02:23] All right. So your firm, DTLA, CPA DTLA. That sounds familiar because I was previously living in Los Angeles, so I take it you might be in in L.A.
Argel Sabillo: [00:02:35] Yes.
Blake Oliver: [00:02:35] Tell me about your firm. Give me the backstory on how you got to owning your own small firm.
Argel Sabillo: [00:02:40] Spend about five and a half years at Deloitte, initially started an audit and then switch over to tax. I've always wanted to do a tax and so when the opportunity, you know, arise and I was able to work at Deloitte, like I jumped on it. And so while I was Deloitte, I was actually running working with like Fortune 500 companies in the United States. And then my team, my staff, they're all in India. So I've been doing offshoring since I graduated college. And then after I left Deloitte, I actually started in an app. And around that time the sharing economy was something that was new. And so we were trying to really automate the bookkeeping and taxes for many business businesses of one, your contractors, your self employed individuals who may have one bank account for their business and personal. So this was also during a time when Tinder just came out. So we had like a swipe feature to categorize your personal versus business expenses and we were mapping it out to schedule C And then, you know, QuickBooks came out with their QuickBooks self-employed, basically just killed the competition.
Blake Oliver: [00:03:51] Oh, no, that's that's, that's the worst. That's that's a tough break. Yeah.
Argel Sabillo: [00:03:55] Ultimately, it was actually a lot of learning, good learning. It was a big problem that we were trying to solve. But ultimately, one thing that I really learned from that experience is that, you know, even if you have an app solution, most people, most business owners like didn't go into business to do the bookkeeping and taxes. And so they as soon as they can afford it, they would hire somebody, they would hire a CPA. And so that's when I realized that, like, technology is not ever going to replace the accounting profession. It's going to be a tool that could be used by the accounting profession, but definitely not something that can replace it, like it can make life easier. But I think the consultative side is still there. So so basically after that, I pivoted into doing a cloud accounting firm, mostly for startups and small businesses, because when I was a founder, I mean I'm a CPA and I could barely have time to do my books and file my taxes like I was very busy with like product market fit, building the product, talking to customers, fundraising, things like that. And so I thought, why not, as an entrepreneur, create a firm that service specifically startups where we're flexible to basically be the complete back office and have high quality deliverables, but at the same time grow with our clients, right? Because you know, in your pre-revenue, you're not going to dish out 500, 600 a month, right? So you basically would we would ramp up along with them.
Argel Sabillo: [00:05:24] So part of being an entrepreneur is kind of figuring out, okay, how can you make that work as a firm? And so we are able for me, was able to build this practice that I have primarily because of everything that I've learned from Deloitte, like the world class process that they have. So I took what I learned from there and built my own process. And initially I looked into India because that's where, you know, for the past six, seven years I've been, you know, working with my team in India and they're very good people. I think for me the problem was what was the vendors solution that was available in the market, right? Like Deloitte was like in India ten years before everybody else was. And they have 10,000 employees there before everybody else was there. And so working for Deloitte, you get used to just working with the best people. And so when it came to me finding solutions for myself, for my firm, not having a presence there really like made me question right. Whether or not. Was the right decision for me. And also just the uncertainty of having somebody remote access my computer. So there's a trust issue as well. And so that vetting process, it's not there, right? Because I'm not on the ground or I don't have like somebody on the ground to do that. And then 2019 is we basically the hiring crunch, the hiring crisis that was happening in the accounting industry was already ramping up even before the pandemic.
Argel Sabillo: [00:06:51] And so to me, like having a remote practice was like something that I didn't want to be confined to the United States. And so around this time as well, I got reconnected with my my best friend in the Philippines because I was born in the Philippines. I grew up there until I was 15, and then my family moved here in California. And so, you know, when I got reconnected with my childhood best friend, he was in the BPO industry. He was in the business process, outsourcing industry as a recruiter. And so I'm like, I'm not sure what the talent quality is in the Philippines, but let's give it a try, because at the very least, I can relearn my Tagalog language that I haven't been speaking for a while. So. So yeah, that's how it started. And from there we basically just, I would say the last four years to me as a startup entrepreneur, to me was an incubation period. Like we did not try to go after a client. So we basically just try to figure out our process, our processes and how do we apply quality management and and training and development for Filipinos that may have exposure and like accounting and some exposure and like local taxation, but not really like super familiar with like US taxation or gap accounting.
Blake Oliver: [00:08:10] So you were, you were working with the offshore resources and so that's how you got comfortable with this idea. Now I've heard differing opinions on like the challenge is the quality of working with folks offshore in India. Like did you find the time difference and sending work overnight to be difficult? I mean, is that why you were awake at all hours?
Argel Sabillo: [00:08:28] Yeah. You have to realize, too, that most of us who joined Deloitte are graduating like fresh grads, maybe top of our class. But when it comes to business, we have no idea what we're doing, right? Like, you're kind of just kind of sinking or swim or sink kind of mentality. And so with that, we had our team in India and they had more experience than than we did. So even though there were like time differences because it's true, I would be like, wake up, you know, I'd go to bed and then I'll give the task. And then I wake up the next day and the quality is not there. And then like a whole day was wasted, right? But I realized that it was a limitation on my end, on being able to apply controls in place and give clear direction so that when I get the work, it's what I expected. In addition to that, I wasn't really embracing working with India or offshoring. It's not something that during the recruiting process they tell you, Oh, you're going to be working with India your whole career. And so, you know, it was basically I think part of it is like not embracing what the opportunity could be, not really giving a lot of like resources or training or investment.
Argel Sabillo: [00:09:42] And the people that were in India and I saw that throughout my career at Deloitte, I felt like India was kind of like a behind a scene when, you know, there's so much more capable than that. And so that's kind of how I think about when I think about like offshoring going forward, is that how are you really utilizing your team? If you're just making them do a data entry, then of course QuickBooks is going to figure out how to automate data entry, right? So there has to be a lot of like investment if you are going to go offshore and full embracement of of building a process that is basically a differentiator as a firm right for you. Because, yes, number one reason that people go offshore is to save on costs. But that also means you have three times the capacity. You can hire three more people versus one. And in our profession, you know, capacity is everything, right? It's it's how we get work done. And if you hire somebody in the U.S., pay them $80,000, but give them, you know, 50 clients to manage to justify the $80,000 salary that they have. Like that person is going to be overworked. They're going to make mistakes and they're going to deliver poor quality.
Blake Oliver: [00:10:55] So what would you say is the number one thing you learned at Deloitte working with the India back office?
Argel Sabillo: [00:11:04] I would say the number one thing I learned while I was at Deloitte is that relationship to me. You know, there is a. Culture at Deloitte. And the culture is basically excellent, right? And we're a company of one regardless where we sit. But in practice, I didn't see that. I felt like the US team received more resources than than our team in India. And so one one of my biggest takeaway was that I told myself when I was at Deloitte that if I ever had an opportunity to create my own firm, I'm going to make sure that like I'm pouring a lot of resources to my offshore team, right? Like where? Because I've realized that, like, the U.S. is the bottleneck. The offshore team can do a lot of work, but then when it comes to review, a lot of the bottleneck is on the review process and client communication. So we've set up our firm so that our Philippines team is actually client facing and that just kind of a game changer because, you know, the US team, the review process is not being hold up because we put processes in place so that the quality is there as well.
Blake Oliver: [00:12:12] So your Philippines team, all your offshore resources are in the Philippines they're client facing. So when you say that, what does that mean? Does that mean they are getting on Zoom meetings with clients, they're emailing with clients. What's the extent of that relationship?
Argel Sabillo: [00:12:27] Yeah, it's emailing clients. So we we provide accounting and tax services. So on the accounting side, that's the day to day communication via email. And then on a monthly basis, a monthly call with the client. And that's also part of what they're doing is I've trained them enough that we're not just doing bookkeeping, we're providing CFO type services where we're giving the KPIs right on a report. And so that's kind of the type of client facing. We're doing an accounting on the top side. It's the document requests, right? Like emailing directly to client. It's basically communicating if there's any follow ups and then signing of the tax returns and then collecting the invoice. So they're really like what you would compare a senior here that that's working directly with with your clients.
Blake Oliver: [00:13:23] And so you partnered up with you have a business partner that helped to build this offshore team. They were working at a BPO, so they they learned how to how to do this. And now so your staff, you actually employ directly or do you use a BPO, another company that that helps bring them to you? Like how does that all how does that all work? Because that to me seems like kind of overwhelming the idea of directly employing people in the Philippines. Are there special challenges around that, Like tell me.
Argel Sabillo: [00:13:54] Oh, definitely, yeah, definitely. I'm very lucky that I'm from the Philippines, right? And that I got reconnected with my best friend because he's on the ground doing all the hiring and also taking care of payroll and taking care of like, you know, registering the the company with the CAC at the local CC. So the challenge is, is really a couple of things. One is basically the hiring process, right? Right now, many people in the United States who are hiring in the Philippines are hiring on a freelance basis. The and mostly you'll find them in jobs that page or you're using a BPO company. So for us, I thought that like it was really important that I build my team the way that I wanted them. And so we were very from day one, we were very we knew how how to hire people like the type of people we were looking for. And I feel like that's a little harder with, you know, going with the BPO, for example, because you would just be maybe given, you know, three people to interview. So we wanted to have the really autonomy to go after the candidates that we want. And you don't get it right right away when you're hiring. So there is that period that you want to see if they're developing. Right. And then the other thing that's like really hard to do to set up a company in the Philippines is really the registration and doing all the payroll and things like that. Because right now if you're hiring a freelancer, maybe you're doing transfer wise. But you know, hiring a freelancer also means that you're not paying for their health insurance. Right. Because they're on a freelance basis.
Argel Sabillo: [00:15:35] I worry a little bit about going that direction. What is the future of outsourcing, especially with like the recession looming? That's something that is worrisome to me because if we look at the last recession in the United States, there were freelancer. Yes. Actually created a lot of people leaving their jobs because they got laid off and then starting their own companies. But for the most part, freelancers are, you know, when there is a recession, they tend to find a stable job. And that's true in other parts of the. World as well. And so especially accountants is very risk averse. So I do think that right now we have a lot of freelancers out there, and it's unregulated in the Philippines, but I definitely can see that if there's a major recession, a lot of them will go back and look for a 9 to 5 for stability, especially accountants. And at the same time as well, I don't think in general, Filipinos want to be freelancers. They're very attracted to the idea because it pays us dollars. Like who wouldn't do that? But they are giving up a lot of things and one of them is like stability. And so. What I feel. What they're doing is that going into this freelancing route, because working for a large BPO, they're basically like turnover at a large BPO is like really high. It's like 80%. Wow. The turnover. And that's because, you know, it's basically driving revenue as high as possible and like driving your employees down to the ground and driving the talent down to the ground. And that's just not that's just not a good that's a toxic work environment that many Filipinos are leaving.
Blake Oliver: [00:17:26] So let's rewind. Go back to when you left Deloitte, and I want to understand the progress of your firm over the last. I think you've had your firm now for what we're coming up on six years of that or four years. Four years. So, so six years since you left Deloitte, but then you took a break and you were working on this app levy, which is the one that similar to QuickBooks Self-employed and then into it created QuickBooks Self-employed and, and and basically, you know, your app was no longer necessary. And so then you started your firm. And I imagine just a you to start. Like most of us. Right. Is that is that right? You were just going out and getting clients and doing accounting work, bookkeeping work, tax work.
Argel Sabillo: [00:18:08] Yeah, it started with tax work. So luckily with the app we were creating the app, but on the back end we were manually preparing tax returns. So that's how I got my start. Okay, just doing manual types returns. And then from there, because we were mainly working with like self-employed, that was the first market that I was able to tap into. And so we were doing the tax return schedule C and then as we progress, we were just kind of looking at like, how can we scale, right? And so I'm a tax person at heart. Everything that I tried to do. The reason why even jump into accounting and bookkeeping is just because the quality of stuff that I was receiving from from other bookkeepers and we thought we could do it much better. I also thought that tax was such an afterthought for many people, and that's why we created the app. The idea is like when you swipe left and right. Yes, it's mapping to a schedule C, but the idea that I was thinking is that someday it could kind of trigger advice, just like how Mint has it right with their app. And so I've always been fascinated with like proactive tax planning. And so when we took on the accounting and bookkeeping work, you were basically like layering in tax advice as we go. If we identify something that revolves around retirement or R&D credit or, you know, accountable plan, things that would basically not only comply with the IRS, but also like, you know, maximize their deductions. That's just been our focus from day one. So when we help our startup companies, it's really what they're getting. And what we're hearing from clients is really like, I'm not just looking for somebody who can do the compliance. I'm really looking for somebody who can, you know, make sure I'm not leaving money on the table. And that's why we've been successful.
Blake Oliver: [00:19:56] Think about this. If you have approximately 60 clients and create five reports a month for each of them, that's over 3600 reports a year. And let's say you're really fast and it only takes you a minute per report. That's almost 2.5 days a year you spend creating reports. Here are a few of the ways how LiveFlow saves time for so many accountants and bookkeepers. Once you create the perfect suite of reports for a client, you can just copy the Google sheet. Use LiveFlow to connect it to a different client's QuickBooks Online company and you're done. The new reports will pull in the data for the second client automatically. You can easily drill down to the details of each number on a LiveFlow report, including drilling down to the transaction level to navigate directly to the transaction inside of QuickBooks Online. No more opening QuickBooks Online to search for a specific transaction. LiveFlow and Google sheets are in the cloud so you don't have to waste time emailing files between your team and clients. You can give your clients access to a suite of reports that they can view at any time, eliminating one off requests for you or your staff. To learn more about using LiveFlow and how you can save 20% off your first three months, head over to earmark CPE promo slash LiveFlow that is earmark CPE dot promo. Forward slash l. I've. E. F. L. O. W. Stop manually updating your spreadsheets with LiveFlow. So it was just you to start. How did you go about onboarding your first Filipino employee?
Argel Sabillo: [00:21:32] Yeah. So the first Filipino employee we onboarded. He was actually way too qualified to actually do prep work. So that was the one interesting learning is that like when you're trying to hire your first hires, you really want to make sure you know exactly what you're hiring for, like and what what the needs are. If it's a preparer that you need, don't hire somebody with like ten years of experience. They're just at that level where they're not going to do prep work. Right? And so the first hire didn't work out the second hire. They were kind of senior already, but wasn't afraid to roll up their sleeves and do the work. And so we just build upon that is hiring our our second employee. And then after accounting, we hired a tax person. And this tax person was also super season. And there's a term for them in the Philippines called shifters. And what that basically is, is on the top side. They are looking for the next employer to get the US taxation experience and then go to another firm and then move up and then get promotion and raises. Right. And so that was really also a learning experience when it comes to retention and hiring the right people. Because if you try to hire somebody who's like experience with us taxation already, especially if they're well seasoned, they're looking for that next promotion, which, you know, it's totally understandable. But if you groom them and then you build them up and you have a clear path to their promotions and their success and ultimately ownership, you know, then that's that's that's what I would that's one thing that, that we do now that we learn from previous hires.
Blake Oliver: [00:23:16] So you started out you hired somebody to well, you hired somebody that didn't work out because they were too senior and then you found somebody. The second employee was for bookkeeping, accounting, doing those, I imagine doing closing the books. Right. Reconciling the accounts, all that. And then you hired a tax person. So now you had somebody that could we had two people that could do both sides of the coin for what your firm offered. And I think you mentioned you do basically two things, right, bookkeeping and tax work. Is that right or is there more that you guys do?
Argel Sabillo: [00:23:47] So we do some sort of like special projects and just advisory. So we do CAS, Right. So we've been doing CAS since the beginning and four and then.
Blake Oliver: [00:23:57] Our listeners who are not familiar with the term CAS is client accounting services or client advisory services, depending on who you're talking to. Which one do you like?
Argel Sabillo: [00:24:07] I like client accounting services, Yeah, because to me, ultimately it's really the accounting work. We're talking about bookkeeping, APAR payroll, and I think advisory is just a separate category altogether.
Blake Oliver: [00:24:20] Yeah, I would, I would agree with you. I never liked when they added AICPA added advisory into that or swapped it out with accounting a while back. And yet to me they're totally different. Right. The the accounting and bookkeeping work is what you need to do to get to advisory. Yeah, you don't have to do advisory If you're doing bookkeeping and tax, it's a lot easier, honestly, probably process wise. Right. But we'll get to that. We'll get to that. Yeah. Okay. So where were we? So we had you had hired two people count. You had two people at that point. And how long did that I mean, you know, that must have taken a little while to get that up and running and, you know, figure things out. Like how how long did that take to get to the three people situation?
Argel Sabillo: [00:25:04] It didn't take long. I think it was really helpful that I have somebody on the ground. I was doing the hiring and that was like the biggest help for me was like actually the hiring process. You know, we started, like I said, with one and then quickly we got into three to help. On the off season. My biggest problem around that time with the first season with a team was that how do I keep this person busy throughout the year? Yeah, yeah.
Blake Oliver: [00:25:31] A problem we have here in the U.S. too, right? So yeah. What did you do to to solve that?
Argel Sabillo: [00:25:36] So that's when I really just embraced that. Okay. If it takes three people for me in the Philippines to hire one person in the U.S., that means that's how much savings that I have. And so if I'm going to have to. Right. That's equivalent to hiring, you know, somebody here in the US, like I'm okay just paying them their salary and throughout the year helping figure out process improvement. So we're very heavy on like continuous process improvement and not chargeable time. Like I and I know that's like, you know, if I was at Deloitte they would tell me minimum 80% utilization rate, right? I need to be chargeable 80% of the time. Our chargeable rate is less than 50% by design. And part of that is we are focusing on training or focusing on development or focusing on improving our process. I just have so much capacity to be able to to really design what we want as a firm versus like the other way around. If I hire somebody in the United States, like they're so inundated with work that there's no time to even archive at the end of the year. And it's just total like catch up every single tax season. So to us, like that's part of the acceptance is that it's a complete shift in mindset where just because you're going to be outsourcing and saving money, it doesn't mean that you keep all that in your pocket. You have to reinvest it back.
Blake Oliver: [00:26:59] Only 50% chargeable or utilized or whatever you want to call it. Yeah, a firm that is really obsessed with time based metrics would not be happy with that. But like you said, it's okay because you're able to hire for half the cost or a third of the cost of a U.S. hire. So. The staff in the Philippines don't need to be, as, you know, quote unquote, productive, whatever that means.
Argel Sabillo: [00:27:26] Mm hmm. Correct. And you know that also you also have to make sure that they're you're continuously giving them something to do. Right. It's not just you know, if it's training, it's development, if it's shadowing, if it's like training the person under you, like those are the kinks we have to work through as we grow. Because we went from like in 2019, we had four employees. By the end of the year, by 2020 we had seven, and then by 2021 we had ten. And today we have 15.
Blake Oliver: [00:27:56] 15 and 15 employees in the Philippines. And so let's talk about, you know, managing that workforce in the Philippines. That's a lot of people. So where is your firm at in in terms of clients revenue? I mean, that's that's pretty rapid growth in terms of headcount. I'd be curious to know the other numbers that you're able to share with me.
Argel Sabillo: [00:28:15] In terms of our revenue growth. Let me see. We are. So basically in terms of the mix of our services where at like. 65% tax and 20% tax preparation, and then about 15%. That's just like special projects. And that could mean consulting, that could mean implementation like other specialized projects. The number of clients that we have year after year, it's been growing. And primarily it's really two things. One is I was able to secure the domain detail AICPA before downtown L.A. became DTLA. Yeah, they and so.
Blake Oliver: [00:29:05] So one of my clients used to be the what do you call it, the the association that was responsible for all that branding the business Improvement district downtown LA.
Argel Sabillo: [00:29:16] Oh, yeah. Big. Yeah, yeah, yeah.
Blake Oliver: [00:29:17] So I did the books for, for the, the downtown the business improvement district that then we did.
Argel Sabillo: [00:29:23] That's awesome.
Blake Oliver: [00:29:24] But you got the DTLA CPA before that even rebrand happens.
Argel Sabillo: [00:29:28] So that was good. Exactly. Exactly. So I got really lucky because you know, one thing, if you're familiar with downtown Los Angeles, is that if you look at megacities out there, all of them has a downtown. But I think only in L.A. where, you know, everybody that goes to California and goes to Hollywood flops into downtown. But we don't really have like a real downtown, like we have like Santa monica, Venice, but like, you know, our downtown is not as impressive as, like, other major. It's cities around the world.
Blake Oliver: [00:29:59] It's like another neighborhood, Right? It's not it's it's not the central place. It's just another place.
Argel Sabillo: [00:30:04] Yeah, exactly. So that was also, like, good for business, because, you know, there were just so many people starting up there, their businesses. So if they're looking for like start up CPA in Los Angeles or, you know, downtown CPA to this day, I'm still like the number one that shows up on SEO. So I've been very blessed with that. So that's so.
Blake Oliver: [00:30:25] Interesting because one of the trends we've seen with a lot of cloud firms is that their clients tend to be geographically distributed, but because of the way that your firm is branded as being associated with downtown L.A., am I hearing you write that most of your clients are in downtown L.A?
Argel Sabillo: [00:30:41] Yes. So there are some limitation to that, right? Because now you're just branded and locally. And so if I mentioned detail, a CPA in New York, they have no idea what that is. And that's where we were doing the rebrand to Hey, April, around these times the past couple of years because it's like, okay, we need a national brand. And so that's where, hey, April came along as kind of like the rebranding that we're going after. And so part of that is going after like e commerce and software companies that are like outside of Los Angeles, but predominantly, Yes, a lot of our clients are still in Los Angeles. There's just like a really rich ecosystem of startups in in L.A. the past five years, right? Like with Silicon Beach and most businesses are still in downtown L.A., like the big four are still in downtown L.A. so it's still the hub if you're looking for professional services.
Blake Oliver: [00:31:37] Yeah, So that's great because you have one firm, but you have two brands that allow you to reach and take advantage of marketing opportunities depending on whether it's local in downtown or if it's e commerce and you want to serve clients everywhere. The Hey April brand is great. And you know, April, I guess, is because everyone thinks of taxes in April, right? Is that the idea?
Argel Sabillo: [00:31:58] Yeah, the idea is that April is tax season and hey is really just kind of being proactive. It's like, hey, April is just right around the corner. We got to get going with with, you know, tax planning or like preparing you for for top season. And I've heard you mentioned before in your podcast, like you're definitely right that like most people do their bookkeeping to get their taxes done. And so, you know, when we work with startups and small businesses, we have that in mind that like, they could care less about what the books look like, they care about how much taxes are they paying the IRS.
Blake Oliver: [00:32:30] Yeah, and connecting those two things is important, but it doesn't happen a lot of the time and we might be doing extra work that we don't need to do charging clients more than they need to pay to get what they need. If what they want is a tax return at the end, let's give them what they want and not what they don't want. That's always been my philosophy. Well, it wasn't when I was in practice, but I learned that right over time. And it sounds like, well, it really started for you with the app because the app that you built was designed to connect the books to the text and to. Exactly to make that easy. Right? So now you're doing that with your firm.
Argel Sabillo: [00:33:07] So let me go back to the numbers. So I want to make sure that we go over that. So just looking at company wide and then I'm going to break out just what Philippines is, and I think that would be helpful for your listeners. Go for it. And so I'm going to cover 2019 to 2020 to like what our growth rate is year over year and then what like our total is so right now life. Time with our firm, we're looking at about 77% gross profit. That's company wide. And then net income wise, we're looking at 20% on average. But this year we're at 28%. And that's including paying myself salary, a reasonable salary.
Blake Oliver: [00:33:48] So that's like you're talking when you say 27, 28%, that's your owner's profit at the end of the day.
Argel Sabillo: [00:33:54] That's correct. That's the that's a net income of the company that gets reinvested back. I can talk a little bit more later about the things that we're doing in terms of profit sharing with our employee and other benefits that we're providing. But let me just give you the numbers right now. So when it comes to separating out our Philippines team and just looking at revenue. So I mentioned earlier I have some special projects. Part of that is like the consulting. So I broke it out where it's just accounting and just talks right in our team servicing those type of channels. So we're looking at 72% margin on tax. So I'm sorry, that's I'm sorry, not taxed that's Philippines both tax and accounting. Okay.
Blake Oliver: [00:34:42] So when you say margin, you're saying 72% margin. So like 28% of your revenue goes to the salaries of the people in the Philippines And that's correct.
Argel Sabillo: [00:34:54] Got it. And that's directly working like clients working or staff working on client work. If I layer in our support services and that would be kind of we have an office manager that basically triage all the emails work on the invoice. I believe your last guest in your podcast talked about having a CFO like that office manager is like so key for us because it really just allows us to focus on the work, right? And at the same time, we're also hiring employees that just do clean up and catch up to really like separate that work completely. But those are what I call support services. And what I also call support services is someone who is managing a payroll and our internal invoices and I.T. support, things like that. So when I layer in our support services, we're looking at about 65% margin.
Blake Oliver: [00:35:49] Okay, so 65%, so 30, 35% cost of labor on the Philippines work? Correct. Correct. Gotcha. And how much of the work is being done? Like, do you have any US employees or is it all Philippines?
Argel Sabillo: [00:36:05] It's all Filipino, all Philippines.
Blake Oliver: [00:36:06] And what do you do day to day?
Argel Sabillo: [00:36:08] Yeah. Podcast. No.
Blake Oliver: [00:36:12] That's the dream, right? That's.
Argel Sabillo: [00:36:13] That's the dream.
Blake Oliver: [00:36:14] Yeah.
Argel Sabillo: [00:36:15] No, I still spend a lot of time with the team, you know, I do a lot of one on ones quarterly. I do one on ones that are not performance management. It's really like mentoring. The other thing that I do a lot is I get involved a lot in talks on the final sign off because ultimately I'm still signing off on the returns. So there's still a review process on my end and also like just process improvement, right? So one of my job that I failed to do when I was at Deloitte is really like give review comments, right? Because of that time delay, You're like, I could do it myself. And so you're not really like developing your team. And so pushing back those review comments takes a lot of time. But then I just feel so it feels so good when you see them not make the same mistakes, right, Because they because you showed them how to do it. And so that and then as well as on the accounting side, you know, there's still some times when the client would email and I'm CC in all the email. So some of those things get really technical because working with like startups, you know, they just think you know, everything. So they were expecting, you know, some financial projections. That's not even in scope. So a lot of it is like scoping projects and trying to like, you know, upsell those projects, making sure that we don't have scope creep. Right? So I'm like just like a true startup entrepreneur. It's like a leaking bucket and just like covering all the holes as the water pour out.
Blake Oliver: [00:37:46] Building the plane while you're in flight or, you know, building the boat while you're at sea. Yes. I think anyone who's listening who has built a startup or built a business knows just how crazy it can be. And I've always said, if you're going to start a business, just embrace the chaos. You just have to be okay with stuff getting missed and you do your best, right? We create processes that can hopefully catch the big stuff, but you know, you can't be perfect. It's not possible.
Argel Sabillo: [00:38:14] Yeah, I feel like embracing the chaos. I mean, it's the you know, when we're disrupting companies, that's chaos. Yeah.
Blake Oliver: [00:38:23] Yeah, right. Yeah. You have to if you're creating chaos, you have to embrace it for yourself to.
Argel Sabillo: [00:38:28] Exactly.
Blake Oliver: [00:38:29] So getting back to the numbers, we keep digressing, but I'm going to bring us back. So let's talk about we talked about head count, 15 head count. You talked about the margins. Anything else you want to share about the firm that might be of interest?
Argel Sabillo: [00:38:42] Yeah, sure. So I broke it down by like tox versus cost. And we have a pretty good balance in terms of revenue. So they're somewhere around about 73% gross profit. But I thought an interesting number is like average revenue per staff, right?
Blake Oliver: [00:38:59] Yeah. Yeah, that'd be great.
Argel Sabillo: [00:39:00] Average revenue for staff for us is like 32,000. The average cost per staff is about 12,000.
Blake Oliver: [00:39:08] Gotcha. Yeah, that's and that's that makes sense because you were saying your cost is well, your cost is far lower than it is here in the U.S., that's for sure.
Argel Sabillo: [00:39:17] Yeah. Yes. And and, you know, you know, I definitely want to be mindful of other CPA firms out there who feel like, you know, paying somebody a salary like 12,000, you know, a year is so low. Yes, it is very low. But I think that's where if you look at my team, we have quality of life. Like our average client for our team is six, like six client per staff.
Blake Oliver: [00:39:47] Six. Yeah. As opposed to 30, 40, 50, which you might have to juggle in another firm.
Argel Sabillo: [00:39:54] I would say 15 is what we're everybody is is at like and if if you're really trying to just churn out and just get work done north of that. And so, you know, I feel like in the U.S., it's it's always like you get paid more, you work more. And then also the mentality is like, you know, if we pay you less, you still work more. So it's just always work more. So I think we have to put that in perspective to that. You know, to date, we've already, in the four years that we've existed or have already invested 450,000 in the Philippine economy. Like, I feel so good being Filipino to be able to do that right and create jobs.
Blake Oliver: [00:40:34] That's amazing.
Argel Sabillo: [00:40:36] And I also want to say that, like again, like you create the firm you want to create, right? That people first. Just because you're offshoring, it doesn't have to feel like, you know, you're doing something wrong. Like you could totally use those capacity to hire more, to build process, to really be a differentiator. Like, we have profit sharing in our company. We also have at the end of the year, take a portion of our salary of our profit and in donated to charity. We are a public benefit corporation. So I'm not sure you're very familiar with that term.
Blake Oliver: [00:41:10] Yeah, like a B? Is that like a B corp?
Argel Sabillo: [00:41:13] Yeah, it's very similar to B Corp. A B Corp is like a certification, right? Like you have to apply and prove that you're not just profit driven, that you also care about the environment and the people in your community. What a PBC is. Specifically a Delaware Public Benefit corporation is basically a set up where on your articles of incorporation in your charter, it states what your public benefit is, what is your mission? And by doing so, you know, if you're not profit driven, if the company ever sold or if you ever have change in board the focus of the VC's, the board is always going to be about what's written on the charter and that says it's not we're not purely for profit. Like we're we're making sure that, you know, talent and development, training and development and also just the pot to like financial freedom to like develop in not just the community around you, but also economic development. Those are like our initiatives for the Philippines.
Blake Oliver: [00:42:12] So how do you package and price your services? Does your team track time? Do you build time? Do you price fix? Do you do value pricing?
Argel Sabillo: [00:42:22] So we we we charge fix. So right now, probably out there you can get a monthly cost for like between 500 to 750, maybe even pushing it to like 1000 to 1250 if they're a little larger.
Blake Oliver: [00:42:39] And what does that when you say monthly cost, what does that include?
Argel Sabillo: [00:42:43] Oh, that's the monthly bookkeeping. So if you wanted to do something like know are that you want to attach to that or payroll, that also would just be billed separately. So that's just on the the bookkeeping side is the that monthly that I mentioned.
Blake Oliver: [00:42:55] And when you say 500 to 750, are you talking market rate or is that like what you're aiming to charge?
Argel Sabillo: [00:43:01] That to me is like the market rate and that's where everybody is at. And the sensitivity on the startup founders that would maybe a little bit more comfortable paying that 500 a month. But if they're like just starting out, maybe in the, you know, 300 a month or 250 a month, we'd like to just work with our clients, with, you know, doing the tax returns at the end of the year and advisory throughout the year as a separate. Service. And then if they want to sue their books, then we take it on. But it's very flexible on what they what type of services they want. And then we're very flexible to just let I mean, we let them know that we can do everything, but just give us whatever you feel comfortable with right now.
Blake Oliver: [00:43:44] Do you get any objections in the sales process to the idea of using staff, having staff work on these books in in the Philippines?
Argel Sabillo: [00:43:53] Yeah, I mean, I've definitely have. So you asked earlier what I do on a daytime. I'm actually the sales person like. So I did a discovery call and I do the closing and I've played around with how to approach it. And ultimately what I've realized is that like if I'm calling Verizon Wireless or QuickBooks, they're not leading with, Oh, my team is in the Philippines, right? Like, no one's ever leading with that. You lead with value. You say, this is your problem and this is what we can do. And then if the conversation comes up like, how is your team set up? Then we let them know and it's not a problem because we lead with value. So one So because of that, like the price objection is like much lower. And also how we're set up, objection is much lower, right? Because they don't care where we're set up, but they just wanted stuff done.
Blake Oliver: [00:44:44] So what tools do you use to overcome the distance and the time difference? Actually, let me start with that. Do you? Does your team work US hours? Do they work local hours?
Argel Sabillo: [00:44:57] So we they work local hours because I've tried it before in different ways and working their hours, it's the best because they're, you know, fully optimized to work. And if you're working graveyard, you know, you're not going to be as productive and you're going to make more mistakes. So we work US hours and for us to be able to communicate, it's really like every day we're on slop. And on our Slack channels, we have you know, every client has its own Slack channel. And the way that we're set up and I think you asked this earlier with all that employees and how we manage them, we have with that 15 people, we have one manager and then we have four seniors and then we have staff. And so every single time there's quality before going out, there's a preparer, there's a reviewer, and then ultimately there's a manager on the on on the ground with the day to day.
Blake Oliver: [00:45:55] And are your clients in Slack as well, or is that just for internal use?
Argel Sabillo: [00:45:59] That's for internal. We've had we have maybe one or two who's on Slack. I wouldn't recommend it because, you know, they just think they can ping you any time, which is like, yeah, similar to like emailing you and saying, I have a quick question and it's not a quick question. So it's mostly internal. And in terms of project management, we use Mondaq.com. And so if you look at our Mondaq.com test board, task board, we have like rows and rows of like statuses and who was in charge of this and budgets and things like that.
Blake Oliver: [00:46:36] And is mondaq.com the way that you ensure that the review gets done on those books before they go out the door?
Argel Sabillo: [00:46:43] No. Many dot com is how I ensure that no project is being left behind. That we have completeness that because part of the offering that we have is like we will renew your business, your your statement of information. If you have Delaware, we're going to help renew that. And so constantly throughout the year, we're giving our clients heads up and it's like, Hey, this is do do you want to do it or do you want us to do it right? And so we have to have calendars, We have to have like deadlines and review process. So it's very it's we're really using it as a project management tool When it comes to the review process, what we use is like work papers and, you know, prepares put together the work paper. You have a reviewer, you have file names, naming convention on the files so that there's always a review process. That's one of the things that that I took from Deloitte is that every tax return that you prepared, there's a work paper and then there's also a tax return support. And those are the three things that you would archive at the end of the year because you don't know if you ever get audited, at least you have the support. And so you have to make sure that everything ticks and ties, which what I learned from audit is that our work paper is like very clean. It's like audit quality.
Blake Oliver: [00:48:00] Yeah, that was one of the things that I didn't learn until I went to a big firm was the importance of work papers and the benefit of rolling those forward and having them for every period. I feel like that is one of the good reasons to start at least to a couple of years. An audit is to get that experience because it's so valuable to have that backup. And a lot of firms don't do work papers. They you ask them what work papers are the smaller firms? And they might say like, what are you talking about? But if you don't have those, how do you support what you've done for the client when it comes to an audit, if there is one?
Argel Sabillo: [00:48:34] And how do you review?
Blake Oliver: [00:48:35] Yeah, well, they don't, they don't, they don't have review, I think. True. True or no. Right.
Argel Sabillo: [00:48:40] Yeah. No true review. I think what I've seen is that the review process is like redoing what the tax preparer would have done. Right. Right. Whereas a review process is like have your taxpayer prepare the work paper, have him do the tick and tie so that when you look at it, you're just looking at a thick and tied number, right? And like the formulas. And at the same time you also just want to do flux flux analysis, right? Just reviewing the work that are like maybe new this month or things that were did not exist last year. That's where the reviewer need to focus their their review.
Blake Oliver: [00:49:14] And any other tools that you want to call out is helpful.
Argel Sabillo: [00:49:18] Uh, I would say Zoom, and we're using Vimeo right now. So one thing that we've found some success is really recording internal meetings because a lot of that could be like Lost in Translation there. So it's good to be able to just go back to recorded videos and we have our office manager also do a transcript transcribing of those calls or minutes. That's been very helpful because it's, it's you realize that when you get the minutes and you read it, it's like, Oh, that's not what I meant. And so it clarifies things.
Blake Oliver: [00:49:56] Yeah, especially with that language differences, right? I mean, small, small phrases can have big differences in terms of meaning.
Argel Sabillo: [00:50:04] Yes, exactly. And I also have I'm also like a kind of a big idea guy being the founder and visionary. And so to really come down from thinking about the company as a whole to like the nitty gritty of a tax return, right. That's really hard to do like that. You have to shift your mindset. And so there could be like a lot of lost in translation there where I'm like going 1000 miles per hour and they're like, What are you talking about? But it's like just agreeing, right? And so it's better to see, see it on paper.
Blake Oliver: [00:50:35] So Mondaq.com that's not a tool that is specific to the accounting profession. Did you look at practice management systems for accounting specifically, or did you just always have Mondaq.com?
Argel Sabillo: [00:50:49] Yeah, I've always had mondaq.com. I think just coming from my startup background, I was basically I wanted something nice to look at every day and that's something that I dread whenever I log in. So yeah, I think part of it is really the design and just the ease, how easy it is to just like drag and drop and, you know, they even have a feature where if your staff updates the status and you get an email, you can just reply on that email and it would update on the on the task board. And so it just really makes it and we're always on I'm always a mobile, like I really work everywhere on my mobile. That's how I get work done.
Blake Oliver: [00:51:29] Does every client get bookkeeping or do you do tax only work?
Argel Sabillo: [00:51:34] So the past four years is really just figuring out who our ideal clients are. So we started with like tax prep for individual and then we move up to like tax prep for businesses. And then we realized that we have to take on bookkeeping. And then from there we realized we have to take on APA, our payroll. And then so most of our clients, now we do the full solution for them. Now there are still clients from the past that we do just one off bookkeeping. We have a huge opportunity in front of us. I think we can double our revenue with advisory that we've never really charged for. We've always layered it in our bookkeeping. It was until recently that I learned that you can actually price out your your advisory and do it in a way where you're leading with value because that's what clients are looking for now. They're not looking for a tax preparer or looking for a business partner, a business advisor.
Blake Oliver: [00:52:32] So. Earlier in the conversation, we talked about the mistake you made or the lesson you learned when you hired somebody who was too experienced. Do you have any other lessons that you've learned from doing this for the last few years from offshoring that you wanted to share?
Argel Sabillo: [00:52:49] I'm definitely what I have learned for the past few years is really to have patience and embracing fully the offshore process. Right? So, you know, leaving the LOI, like I knew what I needed to do, but just really getting into the nitty gritty of it. And it's not it's the growing pains of, of having a firm. And so a lot of that learning is really I would say it was self-inflicted for me because I'm a startup founder and I'm always thinking big. And so, you know, what would take a company maybe two or three years to shift? Like we shift in like next season, right? We're going to take on this work. So a lot of it really is like, okay, taking on different kind of work. I feel like the past four years it's we were just in V one, right? Like if you look at think of it from a startup standpoint, we're on beta, we're figuring out who are ideal customer. We're going to look at our features and see how we're going to let's add these features and this and that rather than like really approaching it like, okay, this is what the client wants. And so I think that's where the learning is, is really just kind of navigating through that, through our ideal client. And then on the hiring side and an employee side, we definitely learn a lot about retention and how to build culture that would last, right? Like that.
Argel Sabillo: [00:54:11] Poaching is so bad right now in the Philippines. Like I've had a couple of employees who are poached from our team and they have their very various reasons on why they left. But ultimately it's the higher pay, right? Because somebody out there would pay you twice as much, even if you knew the work was going to be three times as much. They're just sub circumstances that it's out of their control, like they have to earn more. And so and that's by choice for them. So it wasn't a good fit for us. So we're really, you know, where we dialed everything in is really on the messaging on what type of firm or building. And 100% of our employees, you know, join us because they want to leave a legacy, right? Like they're really thinking beyond just doing the bookkeeping and tax work. And so that that is also been very helpful. The fact that I'm Filipino and that like I understand the culture and I can bridge the culture with the US culture, that has been kind of like what makes it like I would, I would say a competitive advantage for us.
Blake Oliver: [00:55:19] Yeah. So you are at 15 head count in the Philippines yourself in the US. Great margins on that. I think it was what, 27, 28% net profit. So you've got cash coming in to reinvest in the business. What are your goals for the future? Like, what are the where are you going to be in the next four years?
Argel Sabillo: [00:55:40] Yeah, yeah. I would say it's scary to think about it because I would say the past four years, if that was an incubation period and were ready to like take off. Now, I think that, you know, we could really be successful what we're actually doing now. So I was at AICPA in June and from there I was really thinking, okay, what's the next step? Should I go into acquisition? Because that seems to be like I think it's very easy to do an acquisition nowadays, especially with a profitable company.
Blake Oliver: [00:56:12] When you said AICPA, do you mean the Engage Conference?
Argel Sabillo: [00:56:15] They Engage conference, yes, Yeah, in June in Las Vegas. So news flash, it's still like staffing is the number one issue, right?
Blake Oliver: [00:56:23] Yes, of course. Well, and then also, I mean, there's a lot of partners now, like the average typical CPA, I think is, you know, nearing retirement age. And they've got firms that they need to offload. Right. They need to retire. Is that what you're looking at, like acquiring or are you talking about other firms? Maybe?
Argel Sabillo: [00:56:40] Yeah. Yeah. So that's the scary part, right? Like the 75% of CPAs are retiring the next 15 years. How do we replace that? But yeah, I think a lot of the acquisitions. So I looked into it and to see if acquisition is like something that I want to do. I definitely wanted something that is matching with our culture, matching with our process, right? And so a lot of the ones for sale out there are people who are like nearing retirement and they're the main everybody goes to them, right? And so the company is not scalable, the firm is not scalable because once you lose the owner, there's a high turnover that usually happens. And so, well, while I was at engaged, I was talking to so many people about the acquisition experience. And so there's like pros and cons and things like that. And then I've also talked to like other founders, other CPA firm owners, and they were just telling me how hard is to hire. So I'm like, I'm kind of facing this this crossroad. I continue to grow and do acquisition or I can actually try to help. The accounting firm helped them with how I built my firm, help them with like, how do you hire? How do you build culture and retention and how do you grow your firm and upgrade it into like a global firm that can do outsourcing? And so that's where we I pivoted in what is now, hey, April, is basically that what we're a public benefit corporation and what we do is really an ethical way of outsourcing.
Argel Sabillo: [00:58:20] And what that means is basically we've started our first cohort where we have ten accounting firm partners. And the idea is that let's take this first cohort as a pilot program to see if we can bring in staff in your team, right. Like many of these firms that we partner with are either have never done outsourcing offshoring before or have done it with like India and just like things just fell flat in its face, like it didn't work out. And so the challenge is how can I come in and help them with their process and their set up and how can we build teams for them in the Philippines, right where you're not looking at just like hiring freelancer, but really having like an outsourcing partner that would deliver on like the staff, right. And make it easier so you don't have to do all the incorporation and things like that.
Blake Oliver: [00:59:14] Well, that's great. If our listeners want to learn more about that, where can they go?
Argel Sabillo: [00:59:19] So right now you can go at Hey April I o and reach out from us from there. Again, like I mentioned, this is like very new. So the Hey April Inc Delaware company was only incorporated, you know, last month. Wow. Right. So that is separate from like my detail, a CPA professional accountancy corporation. So with this standalone company being it being a public benefit corporation, this is basically the ramp up to like providing this as a separate service. So meaning that detail, a CPA is its first customer, basically. Right?
Blake Oliver: [01:00:02] Yeah. Got it. So you are the you've built the processes, you figured out how to do it. And so now that's a model that you can apply to other firms to help them.
Argel Sabillo: [01:00:12] Yeah. And I would say, you know, there are so many BPOs out there already, right? But I think the true differentiator for us is really that ability to attract and retain talent. Yeah, right. Because the retention is the problem. Like it's easy to hire somebody in the Philippines. You can Google something and find an outsourcing firm that would help you. Right? And granted, there's also a huge labor shortage in the Philippines when it comes to talent, especially tax. Right. And so what we do is we actually do the training ourselves, like we trained them with us taxation. We train them what US gap and doing the bookkeeping the right way looks like. And so we invest a lot in those training and development and also. Invest a lot on those feedback loop from like the cost from like other accounting firms on why things aren't like working, because I would say a majority of it, it's the accounting firm who doesn't know who has a lot of like knowledge gap on how to manage an offshore team.
Blake Oliver: [01:01:19] Well, Argall, thanks so much for sharing your insights, your experience in offshoring with our listeners and me. I learned a lot today. So I have been speaking with Argall Sabelo, founder and CEO of DTLA, CPA and the founder and CEO of Hey April. Thanks so much for spending time with me on the show and I hope to talk with you again soon.
Argel Sabillo: [01:01:43] Thanks for having me, Blake.
Blake Oliver: [01:01:48] Thanks for listening. I hope you enjoyed this episode and that you learn something new. And if you did, wouldn't it be nice to get some CPE credit for it? Well, I've got great news. My new app, Earmark CPE offers free Naspa approved CPE credits for listening to podcasts, including this one. Visit earmarked CPE to download the app, Take a short quiz and get your CPE certificate. That's earmark CPE. Com.