The Path to Advisory in Client Accounting Services (Part 1 of 3)

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We all want to add advisory services to our outsourced accounting practices to increase our value and make more money. But what does that mean and how do we do it? In this three-part series, Dan Gertrudes details how his firm, GrowthLab Financial, has overcome the challenges of delivering CFO-level advisory services at scale to small businesses with his “Finance-as-a-Service” methodology. You’ll learn what questions to ask, who to hire on your team, what deliverables you’ll need to provide, and how to structure client engagements for success.

Blake Oliver: What is the product that we are selling when we sell this?

Dan Gertrudes: So, that's what we struggled with for years. And that's what most companies struggle with. It is too easy to say, “Oh, you need advice? 300 bucks an hour, $150 an hour.” Too easy.

Blake Oliver: Set a meeting, I'll bill you.

Dan Gertrudes: Done.

Blake Oliver: But it doesn't scale up.

Dan Gertrudes: No. Internally, from a company perspective, no, it doesn't scale up.

Blake Oliver: ‘Cause you're limited to the time of the CFO quality people, who are expensive and hard to find, and then it's not a good client experience.

Dan Gertrudes: Duh. Who wants to get a bill at the end of the month?

[00:00:31] Earn free CPE by listening to this podcast

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Blake Oliver: All right, Dan, we're talking about the path to advisory services in accounting. The goal: help accounting firms figure out how they can do advisory. I think we're all on board with the idea of it. We've been talking about it for a long time in our profession. One of the problems that we have, though, is how do you actually do it? How do you add advisory to your firm?

What does advisory even mean? It means a lot of different things to different people. I like to go to the dictionary and look up definitions of words all the time. And I did that before we got on; I looked up advisory, and one of the definitions is, "offer suggestions about the best course of action to someone."

Dan Gertrudes: I think that definition hit the nail on the head. The question becomes, as a practitioner or a firm, a business, what is it that you want to look like in your future state? Because in the accounting business, and the legal business, architecture, you name it, it's always been about advisory, but it's been less about advisory at scale.

So, for hundreds of years, people have been giving advice. So, I don't think it's a new phenomenon. What I think is, how we're trying to scale our business with a lens towards advisory, just like we did in bookkeeping and accounting, removing that one-to-one relationship, being that- a practitioner to a customer, versus a firm with a multitude of employees, and systems, and processes, and technologies, to be able to deliver the advice, the advisory services, whatever we really want to call it, at scale and profitable.

[00:02:48] To scale advisory requires leveraging people without losing quality

Blake Oliver: What does scale mean to you?

Dan Gertrudes: So, if you asked me seven years ago- when I was romping around Boston, hanging out with start-ups until 10 o'clock at night- scale, to me, meant more than one customer, where I could replace my corporate paycheck with multiple customers billing by the hour, or by project.

Today, what scale means to me is providing a service to a customer advisory using or leveraging cadence, rigor, and the team. In other words, by leveraging people, we're able to build scale at the company level. We're able to grow.

Blake Oliver: So, that's interesting. You're coming at it from the perspective of somebody who was previously providing advice or finance services; advice in a finance department for a single company, working in the corporate world. Now, you have your own firm, you are doing the same thing; doing advisory in this context, it's not new.

It's been done for decades, if not hundreds of years or millennia, we've been providing advice. The difference is that we are going to do it at scale, and scale means doing it for more than one client, and defining all the processes so that, well, you're not having to do it all, right, as the firm owner.

Dan Gertrudes: Correct. Without losing control over quality. That becomes the issue when it's a one-to-one relationship, and you attempt to scale a business by leveraging people but maintaining a flat organization. If your strategy to scaling is find the customer or customers, and then build the factory, AKA bring on someone with public accounting experience, someone who can actually meet the needs of that customer, at the end of the day, it's still a one-to-one relationship.

Where's the quality metrics? Where are the quality systems? On the scaling side, if you're looking at your business through the lens of scaling, whether it's internally a division, scaling a business around advisory, just like the rest of you guys did 20, 30 years ago- or 10 years ago, for you.

[00:05:15] Examples of scale in traditional services such as tax and audit

Blake Oliver: So, let's think about scaling then, in the context of those services we've been doing for decades, that we're doing now. I come from the bookkeeping world. A lot of folks come from the tax world, the audit world. What's an example of scale in those areas, those service lines? Because I think that could help inform how we think about scale when it comes to advisory.

Dan Gertrudes: I think that's a great approach. So, having spent years in corporate, I had the wonderful pleasure of dealing with auditors in public companies, tongue in cheek. Sorry, I couldn't stand Sarbanes-Oxley. The managing partner had the relationship with the CFO or the controller of the company.

The individual I dealt with was probably one or two years out of school, or maybe was the actual manager for a particular function within my company. Didn't actually deal with the managing director of Ernst & Young or KPMG.

Audit inherently lends itself to scaling because you can leverage people, and within companies, there's more than one department, more than one function and therefore, more than one test. So, it lends itself well to scaling. On the advisory side, it just has not. And partly, it's because maybe the mentality of the industry, tax, audit, and now more recently, bookkeeping, CAS.

And maybe because I didn't come from that world, inside of a company, the director of FP&A is not the spreadsheet jockey. It is a junior analyst overseen by a senior analyst, and so on and so forth. And you can expand on that if you've got multiple divisions, multiple business units, all rolling up to the CFO.

I'm not sure where the disconnect is, and it could be complacency. There are a lot of people in the industry that are rocking the boat around the complacency of the industry. I don't disagree with a lot of that, but I also think it's not that trivial. At some point, just like we did in bookkeeping, it does not matter if you are a construction company, a restaurant, a service-based business, or a venture-backed tech company.

Bookkeeping is bookkeeping. Yes, there are going to be nuances. There are going to be different applications within the ecosystem you have to learn, but at the end of the day, it’s boring. It comes down to cadence. Get the numbers in the books, reconcile the cash.

Blake Oliver: And you've got systems in place, you've got a way of working in place with bookkeeping and with audit. And we haven't talked about tax yet, but it's similar where you've got lower-level staff that are able to deliver the work, there's quality controls in place, where you have managers overseeing this, and the partners, the firm owners, can grow that aspect of the business without having to be deeply involved in it. To me, that's scale, right?

Dan Gertrudes: That's scale because of one thing. There are quality systems. There are systems that manage quality.

Blake Oliver: And we don't have that when we're talking about other areas of advisory. Most advisory services in firms have no quality control in place. We struggle with that. And so, that's why we have to deliver it ourselves, as the owners.

Dan Gertrudes: That's correct.

Blake Oliver: The partners.

Dan Gertrudes: I agree.

Blake Oliver: So, that helps me understand better, the challenges of advisory. And we talked about one of the challenges of scaling it, and the reason that we struggle to scale it because we don't have quality control in place. And we don't have a way to- well, empower our staff to deliver it. So, we need to figure that out if we want to do advisory, right?

[00:09:09] How to scale with the right staff

Dan Gertrudes: That's right. And the staff is sort of the other leg to the stool, if you will. If you're hiring for folks who understand debits and credits, understand how to do QuickBooks-coding reconciliations, it's a very different persona on the financial analysis side. They're two different people.

So, it's not as simple as, well, we lack quality control, and therefore, we cannot let go of that one-to-one relationship because God forbid, I let a junior analyst put together a spreadsheet, a model, because then, I still have to go in and spend the same amount of time reviewing for quality: those formulas, version control. Do they actually understand the drivers of the business?

And so, part of the quality control is having systems that are analogous to QuickBooks, like in this case, in Giraffe, and there are others out there.

[00:10:10] What are advisory services actually doing for clients?

Blake Oliver: So, advisory services, what are we actually doing for our clients? When we talk about advisory services, we said earlier, the definition is to- what is that definition?

Dan Gertrudes: To provide-

Blake Oliver: The definition is, offer suggestions about the best course of action to someone. So, that could mean a lot of different things. It could mean, how do we save money? Tax planning is something we've been doing a long time in the advisory space in accounting firms. That's nothing new.

It might be going out and getting financing. It might be a lot of things. What is- when you think about advisory from your firm's perspective- your firm is called GrowthLab, you have this concept called Finance-as-a-Service, that seems to be one way that you've defined advisory.

Dan Gertrudes: So, finance- so, back to your question.

Blake Oliver: So, you're coming at it from the finance perspective because that's your career. You have been in corporate finance before you started your firm.

Dan Gertrudes: I look at- I mean, I'm going to- I'd like to reflect a lot on what the industry has done for bookkeeping and accounting. The controller who is developing the revenue recognition methods, processes, does not have to be the same person who's actually doing the bookkeeping. So, why is it that in bookkeeping and accounting, we've been able to delineate capability, but on the advisory side, we just haven't?

And I think part of it is again, quality control systems, tools that manage that quality, or reduce the quality issues. And then it's the hiring. Because at the end of the day, Blake, my director of finance or my senior financial analysts, they're not gonna- they're not ready in their career to have a conversation with a banker around the maturity wall of their debt profile- the debt schedule.

They're not ready to have that conversation, but they can actually put together the information that's needed. Plus, take that extra step and define what the scenario is. So, that way, when I'm jumping in, I can feel confident that the numbers are correct, because they know where they came from, there's quality control metrics in place, and they've given me a little bit of a blueprint as to what's happening.

And now, through my experience, I don't have to spend 80 percent of my time doing journal entries, doing spreadsheets. I can spend 80 percent of my time- and of course, my time is reduced because it's delivered to me- I can spend 80 percent of the value I'm adding to the customer on what's important; the advice. As opposed to paying somebody $300 an hour for a fractional CFO, and you find him or hers, their head in journal entries all month long.

That's not strategy. It's not scalable.

[00:13:10] Finance-as-a-Service

Blake Oliver: So, this is just like a- well, yeah, in tax planning, let's use that as a comparison. We have figured out how to train staff, how to prepare a tax return, prepare the draft return, then the partner reviews it, and does the planning. So, we can do the same thing in finance when it comes to virtual CFO or fractional CFO services.

Dan Gertrudes: Yeah, dude, 100 percent.

Blake Oliver: So, let's talk about advisory from that perspective, the virtual CFO, the fractional CFO, the Finance-as-a-Service term. Let's define Finance-as-a-Service. I love this term that you have created at GrowthLab. It makes me think of Software-as-a-Service, which is the world that we now live in with subscription-based software solutions.

That obviously is- it's gotta be why you chose Finance-as-a-Service; there’s some relationship there?

Dan Gertrudes: I probably chose it ‘cause I hate the billable hour. It's so annoying to have to deal with T sheets. I would love nothing more than to blow up T sheets altogether. I'd love nothing more than to just get rid of time sheets, get rid of the billable hour.

I have- I butt heads with some of my senior team members who have spent years in public accounting. And I said, “I don't want to bill people by the hour,” because the last thing I want to do, at least in my view, accounts receivable is a non-value-added function to our customer. Your customer sees no value in you managing accounts receivable. The value that they get is people processes.

Blake Oliver: So, what does the time sheets have to do with that? It's that you're charging people a flat monthly fee to deliver this finance service.

Dan Gertrudes: Correct.

Blake Oliver: So, just like a software subscription, instead of subscribing to software, they're subscribing to GrowthLab. I like that. That makes a lot of sense.

[00:14:55] What does finance service cover - what do they do?

Blake Oliver: So, then, what are the things that you are doing as part of finances service? What does that encompass? What is in that?

Dan Gertrudes: I look at it through the lens of value stream mapping. And so, you walk into companies-

Blake Oliver: Value stream mapping.

Dan Gertrudes: So, you see-

Blake Oliver: You're gonna have to break that down for me.

[00:15:10] Value Stream Mapping

Dan Gertrudes: So, what's a value stream? It's processes, inputs, outputs, suppliers, customers, metrics to ensure quality, right? I look at that accounting in finance- not just I. I mean, we all do.

We look at the finance and accounting function within a company as a value stream. There are suppliers. They produce something, they process something, they add value to something, and then it passes it along, right? So, I look at that whole function as a value stream. And I see Finance-as-a-Service as helping companies either design, develop, or execute on part or all of that value stream.

That is Finance-as-a-Service in my mind. And why I can put a dollar figure on that is because it's boring. It's the same thing. There's nothing to it. So, if you can put bookmarks on the value stream and understand the ins and outs, you can make money on this. And moreover, you can scale.

Blake Oliver: So, when you say it's boring, there's nothing to it, what do you mean by that? I mean, obviously you've done it a lot. So, for you, it's, you figured out a method; it's predictable. Every business has certain things that are similar, right? Like with bookkeeping- that's where I come from- I know how to do bookkeeping for- I could do bookkeeping for any business.

Dan Gertrudes: Exactly.

Blake Oliver: Because you know, there's 90 percent of it is the same. There's only the 10 percent that's different. So, is that what you mean when you say that it's boring?

Dan Gertrudes: That's exactly what I mean. It's boring because it's about cadence. You want it to be boring, right? Repetitive. And it's about the final product, the rigor.

Blake Oliver: Let's dig in more. What are the things that we are helping our clients with, when we are optimizing their- what did you call it- the value stream?
Dan Gertrudes: Their value stream.

Blake Oliver: So, is that another way I could say it, we're optimizing their value stream, we're enhancing it, we're helping them- I mean, in the end, it's about helping them achieve their goals, right? They want to- from a finance perspective- sell their business someday, increase how much money they're making.

Dan Gertrudes: Right.

Blake Oliver: But start from the beginning. I'm an accountant. I didn't study finance. What are we looking at, when we do this?

[00:17:27] What are we looking at to help businesses optimize value stream?

Dan Gertrudes: Yeah. No. Good question. So, why did I end up with a bookkeeping business, when I was doing more fractional CFO work for startups? Because I-

Blake Oliver: And that’s how you started, right? I think that's important, is your background is corporate finance, started doing fractional CFO work. You weren't doing the accounting, and then you add the bookkeeping.

Dan Gertrudes: No, I can't do accounting. I can't do debits and credits. You don't want me in your QuickBooks. Every time I go into my QuickBooks, my own internal people start yelling at me.

Blake Oliver: Fair enough.

Dan Gertrudes: No, you don't want me in the QuickBooks.

Blake Oliver: Sorry to interrupt, please continue.

Dan Gertrudes: You don't want me in your QuickBooks. I'm actually pretty good with QuickBooks. I enjoy the reporting. I actually can get into the audits. I understand the importance of bookkeeping, which is why I did maybe a little backwards- I don’t know. Most bookkeeping businesses are trying to go up market, right?

There are a lot of groups out there that are trying to train bookkeepers and accountants to be advisors. Be the best you can be. I found myself here as a CFO, but without the support of analysts, and then more importantly, bookkeeping and accounting.

Which is how I ended up where I am up, ended up saying, “Well, if I can't build it, I'm just going to buy it. It's just going to be easier for me.” So, the thing with bookkeeping and accounting is that accounting is inherently optimized to be on a schedule. You're talking about the accounting and finance calendar.

Blake Oliver: Yeah. Yeah. A monthly close, quarterly financials, annual budget.

Dan Gertrudes: [CROSSTALK]. You know exactly what the inputs are, and the outputs are, and what the cadence, the tack time is, the throughput. The issue on the advisory side to replicate that, AKA standardization: what's in, what's out, tack time, throughput. To do that on the advisory side is hard because it's an extra level of human capital. And human capital is not easy to-.

Blake Oliver: Expensive.

Dan Gertrudes: It’s expensive and it's hard to put bookmarks on.

[00:19:29] Start with framework on advisory side

Dan Gertrudes: Because it's not tangible. And I think on the advisory side, you need to start with some sort of framework. The framework is the guiding light around productization. What is the framework?

Blake Oliver: So, I love this topic, right? Productization of services. That is another key to scaling. And it actually is just another term for what you were talking about earlier, which is processes, getting the right people, defining- what do you call it- the quality control. Scope-

Dan Gertrudes: And then ultimately, it was being delivered, right?

Blake Oliver: Yeah. And this is great, because it's bringing me to the question that I want to ask, which is like-

[00:20:08] What are in the packages he sells- what is the product

Blake Oliver: What is in these packages that you're selling? You're selling people Finance-as-a-Service, it's a fixed monthly fee. What are you doing for them? What is the product that we are selling when we sell this?

Dan Gertrudes: So, that's what we struggled with for years. And that's what most companies struggle with. It is too easy to say, “Oh, you need advice? 300 bucks an hour, $150 an hour.” Too easy.

Blake Oliver: Set a meeting. I'll bill you.

Dan Gertrudes: Done.

Blake Oliver: But nobody likes- it doesn't scale up.

Dan Gertrudes: Nope. Internally, from a company perspective, no, it doesn't scale up.

Blake Oliver: Because you’re limited to the time of the CFO quality people, who are expensive and hard to find, and then it's not a good client experience.

Dan Gertrudes: No. Who wants to get a bill at the end of the month?

Blake Oliver: Right. And you don't want to worry about getting a bill for a five-minute call to your CFO that's, you know, 50 bucks, or whatever, 100 bucks.

Dan Gertrudes: Totally. Totally. So, that productization in advisory, I like to look, I go back to- I like to look at the bookkeeping, the history around cloud accounting. Cloud accounting for the first time, had the opportunity for productization, because you weren't sending people to the office. As soon as you send somebody to your customer's office, you don’t know what they're doing.

They could be cleaning toilets, they could be fixing computers, they could be struggling with technology; you don't know what they're doing. It's impossible to product. Now, we have. We've tried to put a monthly price, but it’s very difficult to manage your business, your margins, your capacity, when you're sending people to the office.

Blake Oliver: Well, we’re just selling time, right?

Dan Gertrudes: You’re just selling time.

Blake Oliver: So, if you're selling time, then that's not a productized service.

Dan Gertrudes: Correct.

Blake Oliver: That's just selling people's time. Like you said, they could be doing anything.

Dan Gertrudes: And so, you look at the accounting, you got that accounting calendar, you got the clothes, you got the, you know, the financial institution, the data, right? Comes in at the first of the month, all that jazz, you got to pay your bills, you get money from customers, you got to figure the same thing out in advisory.

What is it that we're going to be- what is our guiding principle? What is our framework around advisory? Then once you have defined that- so, in our company, we talk a lot about the annual strategic business cycle. And I always caveat that by saying, “I know it sounds like management consulting stuff, but there are components of this that are actually crucial to all business.”

Now, I don't always go in and say, “For $1,500 a month, you're going to get the annual strategic business cycle.” I'd get a boot in the ass, right? That's not gonna work. What you end up distilling that down to is, “Oh, you need an annual operating plan, you need an updated annual operating plan, and you need a long-range plan.

And every month, you gotta be visiting that so you can roll your forecast forward.” Because at the end of the day, if you're aligning people's comp with what they signed up for- in other words, your AOP, your budget- then it is your job as a manager to make sure you are measuring or taking inventory of the risks and opportunities to achieving your budget.

And you'd better damn be sure that you're developing countermeasures every month to close the gap. And by the way, even opportunities, there is a gap because opportunities cost money. So, what are you going to do to actually capture that opportunity? That is a countermeasure.

Blake Oliver: So, let's back up for a second. ‘Cause you used a lot of terms that are unfamiliar or may be unfamiliar. We’ve got-

Dan Gertrudes: Where's the dictionary?

Blake Oliver: I don't have one in front of me, so I hope you have the definitions for these. You mentioned annual operating plan. You mentioned long-range plan. You mentioned annual strategic business cycle.

So, maybe a good way to do this is, let's think about a client prospect meeting. I'm the prospect, I'm coming to you because I'm interested in engaging you for Finance-as-a-Service. I've been intrigued by some of the videos on your website. I know that I need help. I want to grow my business.

I want to sell it someday. What do you sell me?

[00:24:02] Enacting a perspective client meeting

Dan Gertrudes: Yep. So, I start by identifying your pain points. And so, here at GrowthLab, we talk about the GrowthLab four. We believe that every business, especially small businesses, are challenged with understanding their cashflow where they're making and losing money, marketing for profit, and paying for performance.

Everybody wants to do that. Everybody wants to understand it. Everybody wants to execute on that, but it's very difficult to do that, unless you're bought into building a budget, a long-range budget, updating your budget, and then creating cadence every month. Don't just shove that budget in the top right-hand drawer of your virtual desk.

Blake Oliver: Those four questions, I love that. So, we have, where is the cash going? That's cashflow. We've got, where are we making-

Dan Gertrudes: And losing money?

Blake Oliver: Making and losing money. So, that's- that seems-

Dan Gertrudes: That's your P&L.

Blake Oliver: That's familiar to me. That's right. That's the P&L, looking at-

Dan Gertrudes: That's the P&L, right? But that's your chart of accounts, you know? You look at chart of accounts, so you see just one line item. And it's like, well, how do you know where you're making and losing money?

Blake Oliver: That, I'm more familiar with, making sure that we've got the right accounts, that they make sense, that we're putting everything in the right accounts, and we can actually make sense of it. Then we've got- you said something interesting- marketing. Marketing dollars.

Dan Gertrudes: Marketing for profit, not for revenue.

Blake Oliver: Marketing for profit.

Dan Gertrudes: Not every dollar of revenue is the same.

Blake Oliver: Interesting. Well, we'll dig into that. And then the last one was something about performance pay.

Dan Gertrudes: Pay for performance, not just to show up 9:00 to 5:00.

Blake Oliver: So, those are your four key questions, or-

Dan Gertrudes: Those are my- you asked me if I was selling.

Blake Oliver: Yeah. Yeah.

Dan Gertrudes: That's where I usually lead. Somebody's gonna say, “Oh yeah, I got problem number one, and problem number three. How are we going to solve for that?” Boom. All right, let's talk about the annual strategic business cycle. You need a budget, you need a forecast, and by the way, you need to be revisiting that.

Blake Oliver: So, let's talk about each of these questions then. This is really helpful, because this is the stuff that people need, is the in-depth, in detail, what am I actually doing for people? You know, frankly, the boards of accountancy, the state CPA societies, AICPA, they don't know how, because they're not doing it themselves, and you're doing it. So, I hope you're okay with digging down deep into these.

Dan Gertrudes: Yeah, no, I love this stuff.

Blake Oliver: Cool. And it's actually, I'm learning on this. I'm getting excited. We have these four questions. Let's dig into number one.

[00:26:25] Where is our cash going?

Blake Oliver: Where is our cash going? I am intrigued by this because I am a business owner who just looks at his bank balance, and it goes up, and it goes down. And when it's high, I'm happy, when it's low, I'm really, really worried. So, how do you, how does GrowthLab help me figure this out, get better at this, understand where it’s going?

Dan Gertrudes: Yeah. So, it starts with what type of company are you? If you're a startup, venture-backed, growth mode, you're probably just burning cash all day long. So, understanding cash out dates, cash burn, liquidity- not liquidity events, ultimately a liquidity event- but understanding the need for, I usually call it your liquidity profile, right?

Every plan has a liquidity profile. Every plan requires cash. So, you've got the startup persona, which is very different than say, a restructuring turnaround situation where you're leveraging tools, shorter-term tools, like 13-week cash flows. Very tactical and understanding the debt profile of that business.

So, you've got the understanding your cash flow from a turnaround restructuring and understanding your cashflow from a venture-backed startup. But the rest of us who kind of live in this other world of, “I gotta do payroll, working capital, bankrolling my customers, oh, my vendors are actually bankrolling me, or my debt payments are due.

I gotta buy inventory. Why isn't my inventory moving?” Understanding your cashflow. One of the first customers that we ever brought on, due to SEO actually, was about five years ago. He said to me, “Dan, I look at the P&L that your team, your accounting team, sends me. I'm making money. But then I look at my bank account and it's down a hundred grand.” And I was like, “Oh, interesting.

Have you looked at your balance sheet? Have you looked at your statement of cashflows?” Bookkeeping and accounting, we're so focused on ticking and dying these, and coding the numbers to the right place, and making sure no one's stealing from our bank accounts, so let's reconcile this, to like, “Oh, and then let's not think about revenue recognition and all that jazz.”

But the problem is, the P&L doesn't actually reflect what's in your bank account. Now, guys like you and I, folks like you and I, we get it. And so, we gravitate towards maybe your statement of cashflow. I would say the most important financial statement is your indirect statement of cashflow. It tells you where your dollars went, and they're either on your P&L or on your balance sheet, or maybe someone walked off with it.

But understanding your cashflow, is it an advisory function? Yeah. I think it is, but that should just be a function of your financial review. So, once a month, you say, “Well, okay, what do I get for this?” If you're on the higher-level package, you're getting two meetings a month. One meeting, you're doing a review of your financials.

I'm not talking about just going down the P&L again, like my accounting team just did. I'm talking about understanding where your cash went.

Blake Oliver: So, helping that business owner understand their statement of cashflows, because even if they can read a P&L, chances are the indirect statement of cashflows is a little beyond most, most business owners.

So, you're having two meetings a month, say on a particular package where you go through the financials with them, help them understand what is happening, how they're all linked together.

Dan Gertrudes: Where did the cash go? And then, understanding where they're making and losing money.

Blake Oliver: Those two first items covered in that. So, we can have a- well, if we're do- assume that we're doing high quality bookkeeping, we can have that meeting, and that cadence can be different, depending on the client. So, it can be less frequent or more frequent, depending on their needs.

That makes sense to me. What about these other two items? They're a little different; they're not standard stuff that I would necessarily cover in a meeting with a client in my accounting firm. The marketing for profit, and the paying for performance. What are we doing there when it comes to services we're providing? How do we package that into something?

So, does that tie back to the annual operating plan, long-range plan, all that?

[00:30:50] Pay for performance

Dan Gertrudes: 100 percent. In your long-range plan, or better yet, your annual operating plan, let's take the pay for performance piece for a second. If you are attempting to align employee behavior to achieve corporate business goals, then you need a pay for performance scheme, a comp structure that gets you there, or gets employees there.

And in order to do that, you need to have a plan. And the annual operating plan- so, I always say, I like to keep it simple. Everybody wants to be comped on every part of the P&L and the cash, and I say, “No, let's keep it simple.” Especially in year one, I'll say, “Keep it simple. Let's focus on revenue.”

Now, I just finished saying marketing for profit, and here we are talking about revenue, right? I mean, it's like a moral hazard paying commissions, right? Let's face it. You pay a salesperson commission, they don't really care if you're going to really make profit on that dollar of revenue. They just- they’re focusing on you bringing the dollar revenue, but that's for another topic.

You want to be able to align people's behavior, and the way you do that is putting together a budget. And part of that budget, I always say, I like to see a plan that has a base, a target and a stretch. So, now, I'm kind of getting a little bit into comp structure here.

Blake Oliver: Now, we're getting into the details of this.

Dan Gertrudes: But you have to because you can't get up to bat unless you've got your annual operating plan, by month, by quarter. And so, you set your plan, and then you set your employees target comp. At target, the goal here is, it's expected that the effort an employee puts into their role, into their job, is with an eye towards the target budget.

So, in other words, your pay for performance at the target- and that's right down the middle, strike zone- that's part of their total comp. You almost expect to give that out. Your base is a way to hedge your bet. And so, I always like to have a base- so, in this case, if we're comping on revenue, or we're bonusing on a revenue, I like to have a base.

So, pretty much anything below base, there's no bonus. If you hit between bonus and say, target, you get half of your anticipated bonus. And I like to keep it very simple. If you hit target right up until what we call stretch, you got your entire bonus. It's almost binary, right? It's a tiered binary system. There's no algorithm here.

Anything overstretch, I like to double people's bonuses. Why is that? Well, I've got my plan. For my plan, I have my stretch. I have my base, but it all starts with that annual operating plan. And on a monthly basis, you're reviewing that plan- I don't know.

Every time I review my financials, Blake, I always say to myself, there is no better check I like to write than my bonus checks. If my team is getting bonused, as a business owner, you're getting bonused, and be able to use that free cashflow to invest in the business.

Blake Oliver: How frequent are these meetings? Do you have different tiered packages that have different frequency of meetings? Are they as needed? How often are you doing this? You said monthly, is that the most common?

Dan Gertrudes: Yeah. So, definitely, monthly. So, the lowest package would be monthly, with a focus on annual operating plan, updating your annual operating plan, and then your long-range plan. So, we keep it simple. I would say 50 percent- not even 50 percent, I would say about 30 percent of customers go with that lower tier. Especially if they have good accounting and timely accounting.

Blake Oliver: And in that meeting, so far, we've discussed, obviously, going over the financials, helping to understand cashflow; this is not super new. But then the thing you've added into that, that is different, that I have not done, that most people probably haven't done, is that management of the- and review of the employee compensation- employee incentive compensation plan.

Is that what you call it?

Dan Gertrudes: Yes. Yep.

Blake Oliver: And you review that on a monthly basis.

Dan Gertrudes: So, that would be at the much higher-level package.

Blake Oliver: Level, yes. So, that's not in your base package. Got it.

[00:35:15] Marketing for profit

Blake Oliver: And then the last question I wanted to get to before we dig into what is this annual operating plan, long-range plan, all that, is the marketing for profit.

Dan Gertrudes: Profit.

Blake Oliver: Yeah. So, is that something you do for your first-tier clients or is that something that it's on the higher plans?

Dan Gertrudes: That would be more in the higher mid-range plans.

Blake Oliver: Okay.

Dan Gertrudes: But that said, even if you have multiple products or multiple service, that type of information, especially if you're using system- so, forget about doing this in QuickBooks. It gets very difficult because you don't have as much flexibility to pull ratios by different stratified revenue and COGS, right?

You can build your management reports to present gross margins by revenue stream. And a lot of people don't actually do that because in QuickBooks, it requires a little bit of spreadsheet jockeying. And if you ever tried to manipulate a spreadsheet coming out of QuickBooks, it’s harder [CROSSTALK] person.

Blake Oliver: Takes a lot of time, yeah. Yeah. Not scalable, to go back to that.

Dan Gertrudes: But that begins to open up there- that begins to open up dialogue, right? I mean, one of the things about advisory isn't just delivering things on a silver platter. We want to do that, and what we don't want is 80 percent of someone's time to be focusing on just delivering a product. We want 80 percent of the value come from delivering the advice around this.

What that does when you're talking about marketing for profit, and you've got the right management reporting, whether it's, say, on the gross margin level, product A, product B, COGS associated with A, COGS associated with B, you’ve got gross margin A, gross margin B, and one is 80 percent, the other one is 40 percent, and you have this holy shit moment. But it doesn't mean you're just gonna stop doing product B. But at least, it starts having a conversation about this.

Blake Oliver: And you know, as a client, where to focus your energy, and you have an insight that maybe you didn't have before, because you just saw top-line revenue, you didn't see it broken down, you didn't see the margins on the products. And now, you can put your energy toward what's actually driving your business.

Dan Gertrudes: So, with QuickBooks, at least you can see the cash conversion cycle on each of those revenue items, kind of maybe a little more difficult on the COGS, but at least being able to see, where am I making and losing money? And is it an issue around pricing?

Is it an issue around my marketing approach? Or am I okay with this because my go-to market strategy is to lead with B, and end up with a nicer lifetime value with product A or service A? But the point here, Blake, is you begin to have conversations.

[00:38:05] Summary / Closing

Blake Oliver: Got it. So, to summarize, we've talked about the four key questions that you ask any prospect: where's the cash going? Where are you making and losing money? Marketing for profit, and then paying for performance. And we've talked a little bit about some of the different things that you do to help clients.

And we're going to take a break, and then we'll come back, and we'll talk about that annual operating plan that we've been talking about, that long- range plan. We'll get into more detail about what it is that we are delivering on that cadence that you mentioned.

And I really want to know, how are you doing this work? How are you- who is doing it? How do you ensure quality? Because Dan isn't doing this, right?

Dan Gertrudes: No.

Blake Oliver: That's the thing that's important, is you figured out a way, at GrowthLab, where you can have financial analysts do this stuff, the bulk of it, 80 percent of it or more. I understand. And then you can come in and sit down and do the meeting.

Dan Gertrudes: Right.

Blake Oliver: That's the dream. That's scalability there.

Dan Gertrudes: That’s scalability, right?

Blake Oliver: Awesome. Well, I'm looking forward to chatting with you next time.

Dan Gertrudes: Cool. Thanks, Blake. Appreciate it, man.

[00:39:15] How to earn free CPE for listening with Earmark

Blake: Thanks for listening. I hope you enjoyed this episode, and that you learned 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, NASBA-approved CPE credits for listening to podcasts, including this one.

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