The Path to Advisory in Client Accounting Services (Part 2 of 3)

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.

[00:00:00] Preview

Dan Gertrudes: Thing is Blake, a lot of small business owners, including startups, they are flying by the seat of their pants. It's all gut. By the way, the gut is a wonderful thing. Even here at my company, 80 percent of what we really do, the decision making is in the gut. What the AOP and the annual operating plan allows you to do is memorialize that, one. And then two, communicate that to employees so as you're designing their comp structure, they've got something to go back to. It's about being- about modifying their behavior to achieve those goals.

[00:00:34] Earn free CPE from listening to this episode

Blake: If you'd like to earn CPE credit for listening to this episode, visit earmarkcpe.com. Download the app, take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now, onto the episode.

[00:00:55] Recap of part 1

Blake Oliver: So, last time we talked, we were talking about, how can accountants add advisory to their practices? And we talked about what non-advisory services are, versus advisory services, how we can look at the non-advisory stuff and we can learn what works there and apply that to advisory. So, tax prep and bookkeeping, which everybody does, pretty much at this point.

We defined the term advisory, which is offering suggestions about the best course of action to somebody. We talked about the four questions that you have, that you use for everyone who comes to GrowthLab, that you ask them, to get an idea of what services they might need from you, where their problems are, what the challenges are.

Dan Gertrudes: Exactly.

Blake Oliver: And that was, where's our cash going? Where are we making and losing money? How do you make marketing dollars, increase profits? I’m paraphrasing.

Dan Gertrudes: And pay for performance.

Blake Oliver: And pay for performance. So, those four things; paying for performance. So now, we've got that as our base, let's build on that. Right? Let's talk about, how do we productize it? Because I think we came to the conclusion that we have to be able to productize whatever we're doing in order for it to be successful. We learned that in tax prep, we learned that in bookkeeping.

So, let's start from there.

[00:02:17] How do you productize advisory services

Blake Oliver: How do we productize advisory, and what productized services do we offer to clients to help them with these four things?

Dan Gertrudes: Right.

Blake Oliver: So, where do you want to start?

Dan Gertrudes: So, let's start with reflecting on when we all jumped into bookkeeping or accounting. Bookkeeping, accounting is a little bit of par for the course, right? You're creating the baseline of the business. That's assuming you've got a bicycle emotion.

If you're dealing with a startup de novo, then chances are you’re really looking out three, five years, developing a story. Very different than a sustainable, ongoing concern, an operating business. Just like when we started bookkeeping, you were probably trying to figure out what is bookkeeping.

A matter of getting transactions organized in a general ledger, based on the chart of accounts. And then every week, there would be transactions that come in, and some weeks, maybe you jump in on a Monday, and maybe, you skip a week, jump in on a Wednesday, and you soon realize, “My God, this customer that I'm charging say, $500 a month for, I'm all over the place.

I'm either, there's too much of high touch. Customer’s always calling me. Every time the customer uses their credit card, they're texting me something.” It's just like it's not sustainable, right? It is sustainable, but is it scalable? And no, it's not scalable. And part of the question of scalability isn't just getting your 40 hours back, but it's leveraging other human capital at different levels of capability to get that same work done without losing sort of the customer expectations.

[00:04:08] Selling something clients don't quite understand

Dan Gertrudes: And I'd like to go back to bookkeeping and accounting, because it really sort of simplifies how you should be approaching building a scalable, sustainable, profitable advisory. It just feels a little different, right? Because an advisory, unlike bookkeeping, tends to be a little bit more binary, transactional.

It's like, either you did it or you didn't do it. Advisory, you sort of play in the world of the unknowns, and alternatives, and scenario planning. And that's difficult to productize.

Blake Oliver: Well, and something that makes bookkeeping maybe easier to productize is that we have- or at least, we have accepted common deliverables that everybody delivers as part of the bookkeeping engagement, which is the monthly financial statements.

Those can have different pieces in them. They could look different, they could be basic, or they could be advanced, and they could have custom reports and what not. But at least we know that's what we're giving them every month when we do bookkeeping.

Dan Gertrudes: You almost don't have to train or teach the customer the market. They already know what to expect.

Blake Oliver: Right.

Dan Gertrudes: Whereas on the advisory side-

Blake Oliver: They don't know what to expect.

Dan Gertrudes: They don't know what to expect.

Blake Oliver: And we have to tell them what to expect.

Dan Gertrudes: Yeah. I mean, come on, 9 out of 10 times, you try to sell accounting or bookkeeping services to a customer, they kind of already know. I mean, today, I had a too young- probably late thirties- successful.

They’ve invested in 15 multifamily or commercial real estate, different SPVs, LLCs. And they're like, “So what do I get with bookkeeping?” That's one out of 10 times that ever happens to me. Like, “Oh my God, I actually have to teach you what bookkeeping is, and what you're going to get at the end of the month.”

And it took me 45 minutes ‘cause they really didn't know. That's usually what happens on the advisory side.

Blake Oliver: Interesting. Interesting.

Dan Gertrudes: Teaching the market.

Blake Oliver: Yeah. Yeah. So, you had to teach them, “Here's a P&L. This is- we're gonna give you a balance sheet. This is what we're gonna do.

Dan Gertrudes: “This is how you pay bills.”

Blake Oliver: This is how you figure your chart of accounts, pay your bills, all that.” Well, it sounds funny, though. But that's exactly the situation that most of our customers are in when it comes to advisory.

Dan Gertrudes: Exactly.

Blake Oliver: So, we need to be sympathetic to that. And often, actually, well, hey, if you're listening, you might feel that way too, right? Because we don't even know what our deliverables are, and we have to figure that out. So, let's keep going with this. We're not giving them a P&L and balance sheet.

We're already doing that when we do bookkeeping. What are we giving?

Dan Gertrudes: Yeah, I think it starts with a framework around business strategy. We talk about the annual strategic business cycle. Again, it sounds very management consulting-like, but there are things that a business should do on an annual basis that are, there are different deliverables every month, that businesses should really be contemplating thinking about confronting, developing, and, or it can just be as simple as your long-range plan, your annual operating plan, your employee compensation structure, your marketing dollars, your updated annual operating plan.

Those three, four things, that's tangible. And if it's not, then that's a different- you know, maybe that's a different conversation.

[00:07:25] Where to get started in advisory services

Blake Oliver: So, we talked about this a bit in the previous episode, and I want to dig into this more now; the annual strategic business cycle, the annual operating plan, the long-range plan. There's a lot there. which of these would be the easiest deliverable for somebody to start with, if they wanted to start doing basic advisory?

They don't want to go all in, they want to just get started. Right? Where would you say I should start?

Dan Gertrudes: So, for an accounting professional, I was first introduced to this back in 2013 with my first startup. And he's still a good friend of mine and he's a senior partner, leadership team of a top 100 accounting firm located here in Rhode Island. And I remember back in 2014- and again, I came from commercial finance, corporate finance.

So, for me, cashflow was everything, and whatever the accountants sort of did on a gap basis was just par for the course. Right? But at the end of the day, we were trying to understand, what are the cash needs of this business? And we were developing a commercial finance business.

And I remember this business model, this financial model pro forma- three, five-year pro forma that I received, and I said, “What is this? How do we get here?” And you start peeling back the onions, and really, all you got was slapping a CAGR on top of a starting point. And that was sort of the plan. And that didn't feel right to me. So, where's the easiest place to start.

It definitely is the annual operating plan, right? It doesn't require a whole lot of blue sky, and you don't need long-range goals. You just need something that's achievable; low-hanging fruit, if you will. And like I said last time, or maybe in another episode, talked about, what are two or three goals that a business owner can readily articulate, easily articulate?

Well, revenue growth. That's an easy one. If you're a million-dollar company and you see the opportunity to be 1.1 million, great. That's a 10 percent increase, $100,000. And if you're able to calculate, if you will, how you get to that $100,000, what does that roadmap look like? Do you need more salespeople?

Do you need more marketing dollars for advertising? Do you need more production folks? Are you in a service-based business? So, if you're in a service-based business, you know that your normal wages are 30 percent of your gross revenue. Then you can quickly calculate if you have enough capacity, and obviously, staggering that throughout the year, because you don't just wake up on January 1st and flip on the switch, and you're on this run rate for 1.1 million, right?

[00:09:54] Having a conversation with your client about goals

Blake Oliver: So, you mentioned something really important, which is having that conversation with your client about their goals. So, with the annual operating plan where we're keeping things simple, because we're only thinking a year out.

Dan Gertrudes: Right.

Blake Oliver: We’re thinking 12 months in the future, and we're saying, “Where do you want to be?” And then the annual operating plan, I often think of that as including a budget, but a 12-month budget.

Dan Gertrudes: 12-month budget.

Blake Oliver: But it’s more than that, right? It’s more- it's also setting the goals, like you said, figuring out how we're going to get there. And the operating plan is the way we get there. Right?

[00:12:28] How does GL do budgets?

Blake Oliver: How does GrowthLab do budgets? And well, how do you do the annual operating plan? What's in there, other than a budget?

Dan Gertrudes: What's in it outside of a budget, it's articulating your goals. So, we'd like to start with your three to five-year goals. So, if we were to start with a new costumer de novo, we really do focus on that three to five-year. So, what are my three to five-year goals? We call that goal deployment planning.

Right. And those are my- that's my GDP. What's my long-range goal plans? And I like to stick with easy stuff like revenue, something qualitative, right? I want to be an industry thought leader. What does that require in the next five years? I want to acquire two businesses in the next five years, to be a creative to revenue by X amount.

Now that you have your five-year goals, now you're starting that journey, and your journey starts with next year, right? Your annual operating plan. So, now, you go from your long-range plan goals to your annual operating plan goals. And then once you articulate those- and that's just really a function of, where do I want to be in three to five years?

Well, what do I have to do next year? What goals do I have to achieve next year to actually be on this journey? After that, it's about, what's the process to get there? So, if I want to be in a position in three years to buy two businesses, then I better start next year, developing my corporate development capability. Right?

I need to be able to be out there sourcing deals, talking to new business owners, or hiring an investment banker, or whatever that may be. If my goal, on the other hand, is to increase a particular product line or service line revenue by 10 percent, because my five-year goal tells me I better double my revenue.

So, that means next year, I should be around 15 percent growth in revenue. What does that mean in my labor side? Well, if 15 percent growth really requires you to hire one person in March, and then another person in September, because the sales don't get turned on, on January 1st. Right?

You got to think about it as, this is compounded and therefore, your production needs to be able to keep up with that. That's all goes into an annual operating plan. So, I go back to this. Keep it simple but keep it thoughtful. It can't be too simple that all you're doing is slapping on a CAGR on your revenue, on your COGS, on your OPEX.

Blake Oliver: Say, what does that mean?

Dan Gertrudes: Compounded annual growth rate.

Blake Oliver: Okay, got it.

Dan Gertrudes: So, essentially, just saying, “Oh, I'm going to increase my revenue by 15 percent. And therefore, everything else is going to increase by 15 percent.” Life really doesn't work that way. If I'm going to grow my revenue by 15 percent, and on average, my cost of goods sold is 50 percent of my revenue, and my wages are X, then you have to be thinking about, when does that growth in revenue actually happen?

January, February, so on, and so forth. And how do I keep up with that production? Now, the thing is, Blake, a lot of small business owners, including startups, they are flying by the seat of their pants. It's all gut. By the way, the gut is a wonderful thing. Because even here at my company, this is what we do for people, but 80 percent of what we really do, the decision making is in the gut.

What the AOP and the annual operating plan allows you to do is memorialize that, one. And then two, communicate that to employees, so as you're designing their comp structure, they've got something to go back to. It's about being- you know, about modifying their behavior to achieve those goals.

Blake Oliver: So, as we discussed previously, we're at least having a monthly meeting with these folks, our clients. And we use some of the first meetings- maybe we do more than that, at the beginning, right? We're having more frequent meetings at the beginning.

Dan Gertrudes: Three months, every week.

Blake Oliver: Every month, every week. For three months, we're doing every week. That's easy to productize, right? And we know that I, as the partner, I'm going to be doing those meetings. Those are high-level advisory [CROSSTALK].

Dan Gertrudes: High-level advisory.

Blake Oliver: So, I sit down, we talk about these things, the goals, metrics we're going to focus on, we try to keep it simple. We come up with a few of these. Okay, great.

[00:16:43] How do you put the verbal plan down on actual paper and spreadsheets at GrowthLab?

Blake Oliver: We’ve got that idea. How do we go from that to the annual operating plan as a document, as a spreadsheet, as a budget? How do you do it at GrowthLab? Are you able to- I mean, you're not messing around with spreadsheets, yourself. We know that's not scalable. So, how do we then push that work down to staff to develop the budget?

[00:17:05] Customer onboarding experience

Dan Gertrudes: So, we should talk a little bit about the customer onboarding experience.

Blake Oliver: Okay. Yes, walk me through it like I’m a new customer.

Dan Gertrudes: The customer- let's walk you through.

Blake Oliver: Yeah.

Dan Gertrudes: So, as soon as you joined the company as an accounting customer and as a FP&A customer, step number one is, do the chart of accounts- does the chart of accounts that you're currently using reflect where you want to be in one year, three years, five years out? Not a fan of totally future-proofing the chart of accounts.

But if we're going to clean things up, and we're going to draw a line in the sand, does the chart of accounts reflect where we're headed? So, that's step number one. If the answer is no, then we go ahead, spend a week updating the chart of accounts, very high level, and then send the chart of accounts over to the accounting team so that when they are actually doing the cleanup and the onboarding of the customer, they're now using the new chart of accounts.

So, that's step one. Step two is once accounting is off and running, the CFO or director of finance, alongside a senior financial analyst- so, in the first three months during this discovery onboarding period for FP&A, there will always be two people on these calls. And we'll actually have the calls recorded on Chorus or on Fireflies, because there is a lot of exchange of knowledge that is happening.

We, as a company, are very industry agnostic. But we don't know everything and every- and there are nuances and idiosyncrasies in every business. And we want to be able to capture that.

Blake Oliver: And you said there's two people on every call in the first three months. Who are those two people?

Dan Gertrudes: It will be either a CFO or a director of finance, and a senior financial analyst.

Blake Oliver: And these are roles at GrowthLab, just to be clear?

Dan Gertrudes: These are roles at GrowthLab.

Blake Oliver: All right, continue, please.

Dan Gertrudes: And so, during the first month, what are we trying to do? One, if you're coming in de novo, without a business model, that's a different approach. Now, I've got to carte blanche, I've got to whiteboard, I've got to understand all the underlying drivers. I gotta understand the historical accounting, and then be able to blueprint what a P&L looks like.

And we really use our 10 steps to business modeling when we're doing something de novo. That would be like step one. Now, if you're coming in with some sort of plan, that makes it a little easier, ‘cause our senior financial analysts can jump in and start blueprinting the model coming from our customer, which will then inform the conversations and lead to other conversations around the drivers of the business, aspirations and goals.

Blake Oliver: And when you say business model, if the customer has one existing, you mean they've got some sort of Excel-based- generally, a spreadsheet-based model where they have inputs, and they get financial outputs from that?

Dan Gertrudes: Exactly. And if they do, step one is blueprint. Step two is input that information into Jirav.

Blake Oliver: And Jirav is the FP&A software that you were standardized on.

Dan Gertrudes: Correct. That is our back-office FP&A platform.

Blake Oliver: Okay.

Dan Gertrudes: So, that is not a one-week project, right? Obviously, depending on the capability one has with the platform, it could take longer. But that is more like a four-to-six-week process, because there are a lot of iterations just building the model.

And then second step is understanding the underlying KPIs that are important to the customer, and that the KPIs, what the customer believes to be the realities of the market, customer acquisition, lifetime value, spend CPC, all that stuff, right?

[00:20:55] Vocabulary recap - important metrics

Dan Gertrudes: You got to make sure that-

Blake Oliver: And again- well, and for our listeners that are new to FP&A advisory, KPI stands for key performance indicator. And you just mentioned one, right, cost to acquire customer, revenue-

Dan Gertrudes: Lifetime value.

Blake Oliver: Customer lifetime value, revenue per head; those are the metrics that we say- I like to say drives the business. That they are really important.

Dan Gertrudes: Definitely, the marketing side.

Blake Oliver: Okay.

Dan Gertrudes: And so, those are important metrics, customer conversion. We even look at metrics such as sales per BDR, sales by account executive, right? Really looking at the whole RevOps. So, I go back to these 10 steps to business modeling, which is on our blog, on our website.

I always said, you know, if income statements were actually created by non-accountants, we'd probably all start with marketing dollars at the top, right?

Blake Oliver: Mm-hmm.

Dan Gertrudes: And the marketing dollars converting into revenue, and so on, and so forth.

[00:21:49] First 3 steps of business modeling

Dan Gertrudes: And so, we really focus on the first three steps of business modeling. And we've used this at Ivy league schools when we're sitting and teaching entrepreneurial finance classes.

And it’s a great tool because it's, you're keeping it simple and you focus on what's important, and it is, you know, what can I afford? How much can I afford to market to my addressable market, to acquire X amount of customers and which ultimately convert into revenue dollars?

Blake Oliver: Then you have to understand KPIs because you need to know-

Dan Gertrudes: Oh, totally.

Blake Oliver: -that- there’s that one really important KPI, customer acquisition cost, or CAC. If you don't know that, you don’t know how much you can spend.

Dan Gertrudes: Totally. Unless you had a lot of money.

Blake Oliver: So, that’s- right. Unless you have unlimited dollars, which, you know, we don't.

Dan Gertrudes: We don’t.

Blake Oliver: And that's one of the things that people, I think, miss a lot in the discussion about KPIs and KPI dashboards is, all get excited about, “Oh, I'm going to have this fancy KPI dashboard for my clients,” but then the clients don't actually really use it, because we haven't linked those KPIs to anything.

And what you're doing here is, you're linking the KPI to the business model. And then the reason that we look at it, is because we know what it needs to be.

Dan Gertrudes: Because they are the underlying drivers of the business.

Blake Oliver: Right.

Dan Gertrudes: So, great, revenue by headcount, who cares? If you're not comparing it to something, either on a time series or benchmarking against competitors, what's the point of looking at revenue by headcount? There's nothing; that's a waste of a KPI.

Blake Oliver: Okay. So, let’s continue on this customer journey here. Where were we? We were understanding the KPIs, building out that- whiteboarding that business model, because they don't have one, a lot of the time. And we're translating that into something.

Dan Gertrudes: Right. So, I digress.

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[00:24:48] Back to onboarding a client and building your 3-5-year plan

Dan Gertrudes: So, the first six weeks are focused around building your three to five-year long-range plan. And normally, we like to do that in the fall. But when you acquire a customer, say in the spring, you just have to- you have to build that long-range plan.

Then coming out of that long-range plan or going into the long-range plan, you're identifying the goals of the business, the underlying drivers of the business, the staffing roadmap, product development roadmap, and then ultimately, the liquidity needs of the business.

Remember, every plan needs cash- and I don't care if the cash is coming from free cashflow, from a bank, from an investor, or a venture capitalist. Every plan needs cash. Working capital, scaling of the business, et cetera. So, those are kind of the three or four things that we sort of take away, coming out of building the long-range plan.

Again, we just don't slap on the CAGR. We have to build it through more fundamental approach, understanding the drivers of the business. So, step one is six weeks in, long-range plan completed. Two weeks later, start building out the management reports, some of the dashboards, based on the KPIs that we use to build a long-range plan.

And then by month three, we should be tightening up our annual operating plan. Now, this works all wonderful when a customer comes on in the summer, but that's not always the case.

Blake Oliver: And again, how many KPIs, on average, do you set up for a customer?

Dan Gertrudes: So, it depends on the customer. I mean, if it's a, say a B2B SAS, you know, RMR type of business, and you're acquiring customers- you know, you have to understand the- I'll just use the word funnel, right? Trying to understand the dynamics of that funnel, you could be talking five, six different KPIs, just high-level KPIs.

Blake Oliver: Okay. That's good to know.

Dan Gertrudes: And that has nothing to do with underlying cashflow profitability or cashflow breakeven of hiring employees, right?

Blake Oliver: Yeah.

Dan Gertrudes: That's another important KPI. When does an employee actually become cashflow positive?

Blake Oliver: Okay. So, we've understood the business model. We have a long-range plan.

[00:27:13] How do you create an annual operating plan?

Blake Oliver: Getting back on track, how do we create that annual operating plan? Do you do that? Does your staff do that? Where do we go from here?

Dan Gertrudes: Good. So, at the end of that third month, we should have an annual operating plan that is locked and loaded. Now, it's a budget. It doesn't change. So, in the first year, it's a little different, right? There's a lot of, somewhat of a learning curve for the customer; they're not used to this. But assuming that this is an ongoing concern, and they've been around for a while, you create that annual operating plan.

It's locked and loaded, January 1st. It doesn't change. And now, we're using- now, we go to that productizing, right? You've onboarded the customer the first three months. Now, we can start talking about the rigor, the cadence, right? The thing we do in bookkeeping and accounting.

Blake Oliver: Now, the annual operating plan, that budget, you have financial analysts who can take the business model that you understand- as you understand it, and turn that into the budget?

Dan Gertrudes: Correct.

Blake Oliver: Is that- that's how you've- okay. So, you do the weekly meetings, you understand it, you document it, and then the financial analyst- well, I guess that senior financial analyst is on the call, turning it into-

Dan Gertrudes: They’re on the call. I, personally- yeah, the CFO or the director of finance begins to wean themselves off of these customer meetings by the third month.

Blake Oliver: Got it.

Dan Gertrudes: Because by the third month, you already have your set of tools: your long-range plan, your annual operating plan. Now, we go on to workflow. What is that repeatable workflow look like on a monthly basis, and on a quarterly basis?

Me, personally, I will jump in once a quarter to review actuals to budget, to get an update on the state of the business, some of the variances, the countermeasures, like, what's going on, any questions around hiring, and how they should be thinking about hiring and marketing, et cetera.

But all in all, on a monthly basis, if you are on our highest-level package, you’re probably getting a meeting once a week; the middle tier package, it's every other week. One week, we're looking at actuals to budget, more of a financial review.

And then on the second week, we're looking at more of an operational review: staffing, marketing, numbers, CAC, LTV, the things that are changing along the way. And I don't do that. The financial analysts are able to do that.

Blake Oliver: Great. And we're going to talk all about what kind of people you hire for these financial analyst roles in a bit. Let’s stick with the productization of the service. So, I take it that as part of the service, now that we've got an AOP after that third month, we are now delivering our financial statements that include- or management reports, if you want to call them that- that include budget versus actuals, variance reporting.

[00:30:12] What is in a typical management report?

Blake Oliver: What else is in your typical management report packet?

Dan Gertrudes: So, definitely, the actuals to budget. I like to look at some trends, I like to look at gross margins by service or product line. I like to see the trend from month to month, less about- I mean, sometimes, year over year, but lately, it's been more month over month, or actuals over plan.

Blake Oliver: And those margins by service line, you're able to do that because you've set up the chart of accounts properly so that-

Dan Gertrudes: Properly, and because in Jirav, it allows you to do that. Whereas in QuickBooks, you're much more limited as to the type of ratios you can produce. The other big thing- I really geek out too, and I don't think people look at this enough- that is a common-sized- some people call it normalized, common-sized balance sheet, P&L.

I love to see the consumption of revenue by expense line item. That tells me a lot of story around what's actually happening, especially when you're in hyperinflationary periods.

Blake Oliver: Consumption of revenue by expense line item. Tell me more about that. What does that phrase mean?

Dan Gertrudes: So, I believe accounting 101, you guys called it common-sized balance sheet.

Blake Oliver: It's been a little while, so you might have to refresh my memory.

Dan Gertrudes: So, if you look at gross revenue as 100 percent; the total pie, and then you start depleting that pie, starting at cost of goods sold, maybe you've got raw materials, direct labor costs, freight, right? So, you look at cost of goods sold, maybe depletes revenue by 50 percent, leaving your gross profit or gross margin at 50 percent.

But then you like to see what components are gross, costs of goods sold are taking- you know, eating up more of that revenue. And if you start looking at that month over month, that actually tells you a clearer picture of what's actually happening. And you can find- there's a lot of things you can find, especially inflation, improper accounting on an accrual basis.

So, there's a few things that you can uncover by doing a trend- month-over-month trend analysis of a common-sized P&L or a balance sheet.

Blake Oliver: So, now the meetings have gone to a monthly basis, and the meetings are with, generally, the- or did you say biweekly? I can’t recall.

Dan Gertrudes: So, normally, it is biweekly. So, every two weeks.

Blake Oliver: Every two weeks. Senior financial analyst does all of those meetings, and then you jump in once a month, once a quarter-

Dan Gertrudes: Once a quarter, or we have our standup meetings every day. We have standup meetings once a week, kind of doing a full portfolio review. Once a day, we do sit down with the entire analyst team, for 30 minutes, and kind of run down all of the customers- what happened yesterday, what's happening today?

Once a week, kind of doing more an all-hands-on, and now, all of this work is actually templatized and memorialized in our workflow system. We use Karbon.

Blake Oliver: Got it. Karbon. And that keeps track of all your recurring work, and all the one-off jobs, and you make sure the work gets delivered.

Dan Gertrudes: Right. But Blake, you know, sometimes, we have to think about this FP&A component, not just starting with FP&A and ending with FP&A. It really starts with bookkeeping, good solid controllership closing of the month, fiscal review, where the accounting team is- actually, has an open line of communication with the costumer to close the books, while my senior financial analyst is actually on that call.

So, even a call where the accounting team is closing the books with the customer, there will be a senior financial analyst from the FP&A team on that call with the controller, because it's important to have continuity of customer information throughout this entire value stream.

Blake Oliver: Gotcha.

[00:34:27] Working to get all the information they have flowing and working together

Dan Gertrudes: One of the biggest pitfalls that we've had, and sort of critiques from our customers is, GrowthLab- dealing with GrowthLab is like a blackhole. We don't know what happens to our information. And the irony is like, “Hey, you're coming to us because we can manage everything, from your bookkeeping, accounting, FP&A, up to your tax.

But yet, the entry points are very different, and we've made a concerted effort in the last 18 months to really tie all of these things together, especially the flow of information.

[00:35:01] How software has helped

Blake Oliver: And one way that you are able to get information flowing easily between accounting and finance, and creating this budget, and the long-range plan, which is a forecast, doesn't take forever, is because you're using software that speeds this up and keeps it all in one place.

Dan Gertrudes: Totally.

Blake Oliver: So, you're using Jirav as your financial planning and analysis platform, FP&A software is the category. And that is hooking into your customer's accounting system, which, what do you use for accounting for these folks?

Dan Gertrudes: So, I would say we are about 80, 85 percent QBO, and 15 to 20 percent Xero, if you were to just look at the cloud. And then obviously there's a handful that are something else, non-cloud based.

Blake Oliver: So, you're pulling in all the data into Jirav, and then you are building a financial model in draft. That's the logic that you would normally have in a spreadsheet. We don't need to get into detail on that, but that's basically, the setting up the drivers of the business.

Dan Gertrudes: Right.

Blake Oliver: Setting up the KPIs that are important. And then you do your reporting in your dashboards in that tool that includes the budget and the forecast. So, it's all in one place.

Dan Gertrudes: Correct.

Blake Oliver: So, you're not mucking around, sending spreadsheets everywhere.

Dan Gertrudes: No.

Blake Oliver: Do you think it would be possible to have GrowthLab do what it does if you didn't have an FP&A software?

Dan Gertrudes: You know, we did it for many years. So, we've been around eight years. And in the first four, five years, it was all spreadsheets. So, anytime you wanted to do actuals to budget, just keeping it simple, and bookkeepers and accountants love changing your chart of accounts. Because the transaction comes in and nobody knows where to put it, just create a new account.

Blake Oliver: Make a new account, why not? Right?

Dan Gertrudes: Well, the problem is, the CFO on the other hand, or worse yet, the analyst who doesn't have enough business acumen, they can't seem to tie the plan to the actuals, or the actuals to the plan, and it's like finding a needle in a haystack, and so on, and so forth.

So, Jirav- and we've- we actually look- we've been on the hunt for a long time for a platform. We've seen the dashboards; either they were overly simplistic, or they were too complicated to set up. You needed tight, tight accounting, and you- please find me one company that has tight accounting. There's always going to be nuance, right?

There's always going to be errors in there. And so, having a platform that calculates days outstanding, something silly, simple, right? ‘Cause there's a lot of- there's a million ways to calculate days outstanding, but just keeping it simple, it's very difficult to do that.

And these systems would just- you know, they would plug into these chart of accounts and the QuickBooks, and it wasn't 100 percent. Because if you're on cash, versus accrual, or you have a combination, I mean, everybody's on some sort of hybrid cash accrual, right? Nobody's on 100 percent accrual.

So, it took us a while, and we found Jirav. And then initially, we just felt like Jirav wasn't robust enough to deal with the type of modeling that we were doing. AKA business modeling for the purpose of fundraising, seed, series A, series B. And so, we needed more sophistication.

Plus, we needed to be able to walk away and understand, what are the liquidity needs of this plan? What are the multiple tranches of capital raising? And it was only until 2019 that we realized Jirav had come a long way, and it could replace what we were doing in the spreadsheets.

The biggest difference was, as a 46-year-old guy who cut his teeth in Excel, you literally had to throw out 20 years of learnings, and you know, how spreadsheets are built, you have to throw that away. And that was- and that is very difficult for me.

[00:39:05] Project Tower

Dan Gertrudes: And it was very difficult for me. But yet, we have a team; we call them Project Tower. And they are young financial analysts right out of college, as part of our recruiting and training development.

And yes, we do call it Project Tower. And yes, I can tell you who on my team-my good- one of my senior financial analysts, Ben, out in Denver, he’s like, “Oh, we should just call it Project Tower.” And everybody's like, “Why?” So, Blake, do you know why?

Blake Oliver: Well, that's because- and full disclosure, I used to work at Jirav- a group of Jiravs is called a tower.

Dan Gertrudes: Okay, there you go. So, we've got-

Blake Oliver: Like you’ve a flock of birds or- yeah.

Dan Gertrudes: So, we got Project Tower analysts, and that's all they do is build a blueprint and build models in Jirav. Which is great, because now, you're getting these young, in-training analysts to not learn Excel because they will always get it wrong in Excel, and I'll end up having to spend just as much time fixing the work and double checking and look-

So, I don't have to deal with that anymore. And now, we've got standard operating procedures for building up a Jirav model, which can then be used for making FP&A boring again; cadence and rigor.

[00:40:22] Do the financial analysts follow a plan, checklist?

Blake Oliver: Cadence and rigor. And so, let's touch on cadence and rigor. And then, in the time we have left, I want to talk about the financial analyst people. So, cadence and rigor, that is these monthly meetings, or bi-weekly meetings.

Do you have standard talking points, things you hit on, things that you're- do you have a checklist for your senior financial analysts, or do you just let them run the meeting? How do they know what to do? Do they just get on a Zoom and have at it?

Dan Gertrudes: Yeah, no, good question, right? So, they start with revenue. So, for the FP&A side, we do focus on the balance sheet, but believe it or not, we actually focus a little less on the balance sheet than the P&L. So, we do focus a lot on the P&L and starts with customer acquisition.

So, one of the nice things in Jirav is that you can actually go to the second derivative of your revenue and look at things like shipments, things like how many customers you acquire, your bookings, MRR, and all that jazz, right? Because all of that ultimately rolls up to customer attrition, customer retention, customer acquisition, and then revenue.

Blake Oliver: And this is a really important point, which is that you can budget for those metrics.

Dan Gertrudes: 100 percent, and we would do that anyways in a spreadsheet. Now, we cannot do it in the spreadsheet. And so, we start with what's important for the business, which is customer acquisition, and then, onto revenue, and then onto cost of goods sold, and then ultimately, OPEX, and really trying to understand the why. First of all, this is what we thought what happened.

And it's identifying, ultimately, we're trying to get to the point of understanding the risks and opportunities to achieving or not achieving your full-year plan. Once you've identified those- so, if you can picture the analyst kind of running through those, and coming out of every meeting, there should be top three opportunities, top three risks. Okay, great.

Next step is the conversation around, what are we going to do about it? So, if you were to tell me, “Oh, damn. We had a slam dunk month in September. And I got to tell you, October, I kind of actually think we're going to do over 20 percent of our budget in October, which means we're just going to blow through the numbers this year.”

My next question is, “How are you going to do that?” Just because you have the opportunity to bring on this new sale, on the flip side, you need to be able to produce it. So, countermeasure, we need to start hiring, right? Or we need to allocate resources. So, starting to have some of those conversations. Now, an analyst with, say five to seven years, are they going to have- be able to have that level of business acumen conversation? Probably not.

But that's where if things are a little heated, that's where they would bring me in, and I would have a follow-on conversation with the customer. Customers that- going into fundraising mode. Well, again, the financial analyst will help the customer model out what the rays would look, the sources and uses of cash, but if it comes down to conversations around investor profile, you know, more ad hoc CFO level, then that would not happen in that FP&A meeting, that would happen in another- probably other different service or billable meeting.

Blake Oliver: Okay, this is great. I'm gonna stop you there because we're almost out of time. So, just to sum up, we've kind of defined- I think we have really defined what a productized advisory service is, the essence of it, long-range plan, annual operating plan, rigor and cadence with regular meetings where we review budget versus actuals, and all of our key KPIs and all that stuff.

So, that's the essence of it. And it layers really well on top of bookkeeping, because we'd already been preparing financial statements. We're now just going the next level and now, they’re management reports, right? They can use to run their business.

You mentioned those important roles; you have the CFO or director of finance role, that's often you, or that could be another higher-level folk, person. You know, somebody who'd be like a partner in an accounting firm, or a director. And then you have these senior financial analysts. And those are the ones who are doing, what is it, 80 percent of the work, right?

That's the-

Dan Gertrudes: Right. So, the senior financial analyst will be doing probably 50 percent of the work.

Blake Oliver: Okay.

Dan Gertrudes: But adding 80 percent of the value. And then under the senior financial analyst, you would have the junior analysts, who are actually modifying the models- in this case, in Jirav- and producing the output for those meetings.

Blake Oliver: Okay.

Dan Gertrudes: So, yeah.

Blake Oliver: So, you got- yeah, you've got various levels of financial analyst roles, and this team is totally separate- well, I wouldn't say totally separate, but they're a separate team from accounting.

Dan Gertrudes: Separate team from accounting, but they work together, and everything flows.

Blake Oliver: So, when we come back next time, I want to talk about what that team looks like in more detail, who you are hiring into these financial analyst roles. I mean, we can say, I think I know the answer-

Dan Gertrudes: They're not accountants.

Blake Oliver: They’re not accountants, yes. So, that's interesting. That's really interesting. And then we'll talk, maybe if we can, about how to price these different levels of service.

Dan Gertrudes: Yeah, no, I appreciate it. And I’ll be honest, we've even offered some of our accounting and bookkeeping team members to join the FP&A team. And surprisingly, everybody said no. So, we actually do have to go outside of the firm to hire new analysts.

Blake Oliver: It's a very different mindset, I have found, you know, coming, myself, from an accounting and bookkeeping background, and then learning FP&A, working at Jirav. It's a very different way of thinking.

Dan Gertrudes: Different way.

Blake Oliver: Very. So, I really look forward to that conversation with you when we return. Thanks, Dan.

Dan Gertrudes: Cool. Thanks, Blake.

[00:46:24] How to earn free CPE by 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. Visit Earmarkcpe.com to download the app, take a short quiz, and get your CPE certificate. That's earmarkcpe.com.

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The Path to Advisory in Client Accounting Services (Part 2 of 3)
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