The Path to Advisory in Client Accounting Services (Part 3 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] Thank you to our sponsor, Botkeeper.

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[00:00:21] Preview clip.

Dan Gertrudes: A lot of folks would tell me, "Dan, you're under-pricing that though." And I said, "Well, yeah, if I was doing all the work myself, I would be under-pricing that, but I'm not doing all the work myself."

Blake Oliver: Right. Because you're leveraged one to twenty.

Dan Gertrudes: I'm leveraged. So, as I'm levering my time, I'm able to provide more with less.

[00:00:41] Earn free CPE from listening to this podcast!

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.

[00:00:59] Welcome and a quick recap of parts 1 and 2.

Blake Oliver: Dan, welcome back. It's great to see you for part three of this discussion on The Path to Advisory.

Dan Gertrudes: Cool. Thanks, Blake.

Blake Oliver: How are you doing?

Dan Gertrudes: I'm good. I'm good. Another week, man.

Blake Oliver: Well, the last two times we talked, we discussed how to scale an accounting firm in advisory through the lens of FP&A, productization of that service, what exactly is in it, what is the product that we are delivering as part of a productized finance function. And you use the term finance as a service, which I love. And if you're just tuning in, go back and check out those previous episodes in order to learn about what that is. So, we talked about productizing advisory work, the framework around it, including the annual strategic business cycle, the annual operating plan, the budgeting, the forecasting.

[00:01:58] How do you staff to scale and deliver?

Blake Oliver: And one thing that we have not yet discussed, which is super, super important is the staff, the staffing. How do you actually deliver this? Because if we are scaling this, we, as partners, as directors, as managers, cannot be doing this all ourselves. And that is the secret recipe or the secret sauce for you, anyway, if I understood correctly last time. Right?

Dan Gertrudes: Totally. Leveraging people. That's the secret sauce to making money in this business.

Blake Oliver: We mentioned that you use financial analyst. So that's the term you use. The role is a financial analyst role when it comes to delivering finance as a service.

[00:02:41] The difference between an accountant and financial analyst.

Blake Oliver: So, explain to me the difference between an accountant you would hire in GrowthLab and a financial analyst that you would recruit. They operate on separate teams. They have different roles. Help me understand the difference.

Dan Gertrudes: Correct. So, when hiring for a senior bookkeeper, a staff accountant, even a controller, I'm looking for someone probably no different than the rest of the industry, someone who has had either 5, 10 years of actual experience in doing the bookkeeping, the reconciliations. More importantly, I would say, is also navigating the systems and how to actually integrate them and sync them. For a controller, I'm really looking for someone with more of that traditional debits and credits, understands GAP, maybe some light FASBI, work papers, the importance of having supporting work papers for each account on the balance sheet. And then other things such as revenue recognition, accrual, accounting, et cetera.

That's a very different skillset than needing someone who, never mind the business acumen or the financial acumen, but somebody who understands cashflow, cashflow modelling, obviously has some experience, either academic, mostly academic around a balance sheet, financial statement. Maybe it's a little less about aptitude because surely you can take somebody that has an accounting degree or a finance degree, and you can probably train them in sort of the world of financial analysis FP&A. But it has to do maybe more with attitude.

Somebody who can deal with ambiguity, has organizational agility. Because remember, FP&A is the connective tissue between business strategy and accounting and financial information. Somebody who can see beyond sort of the current states, and then can articulate journey from the current state to future state. But at its core, what's still important, regardless of the role, it's cadence and rigor. Cadence, being able to understand workflow, meeting workflow deadlines, and then lastly, around the rigor, what is being delivered, how is it been delivered, regardless if it's two or three financial statements or actual budget and annual operating plan.

Blake Oliver: I liked what you said there about the, what was it, it was curiosity or the difference.

Dan Gertrudes: Definitely intellectual curiosity. Someone who wants to scratch that edge works really well.

[00:05:24] What type of degrees and experience to look for when hiring financial analysts.

Blake Oliver: And so, you're typically not recruiting accounting graduates into these financial analyst roles. What kind of degrees do you look for? What kind of experience do you look for?

Dan Gertrudes: So ironically, we do have one individual who has an accounting degree. Everyone else is everything from econometrics to finance, to more general business, depending on the college. Some liberal arts schools obviously don't have a structured business program. And yeah, ironically, the only individual who actually has an accounting background is Cournoyer, who I wouldn't even put him in front of QuickBooks. He's spent his entire life in front of spreadsheets and of course, more recently, in front of Jirav. He does extremely well with the details. So, he understands the debits and credit and the theory, but what he really enjoys is more of that blue sky carte blanche sort of opportunity to build a plan, tell the story around that plan. So, I think it goes back to attitude more so than aptitude, but definitely two different tracks, two different career roadmaps.

[00:06:30] Where does Dan recruit employees?

Blake Oliver: And where are you going out to recruit? You guys are a firm of, is it a few dozen now, 30, 40?

Dan Gertrudes: Yeah, we're about 28 as of Q4.

Blake Oliver: So, you're in an interesting spot because you're not small anymore. More than 10 I would consider is no longer small. So, you're in the mid-sized firms. But you're also not large. So, it's hard to compete, I imagine, with some of the larger firms recruiting out of school. Did you say you're not recruiting out of school; you look for folks with experience already?

Dan Gertrudes: On the contrary. 100%. So, for FP&A, it is 100% right out of school. Maybe one to two years of experience. But we're actually in the process. Because our goal is to achieve a one to twenty leverage, that requires to build the bench, the entry-level bench. And as we grow and scale, the hope is, of course, and it's happening because we're seeing it, one or two folks are starting to pop into that level, building up the bench so that you can bring these young talent to the next level, such as senior financial analyst, director of finance. I mean, they have years, 15, 20 years to be a CFO, but that's kind of how we're looking at it.

Blake Oliver: So, you said one to twenty leverage. Do you mean one staff per twenty clients?

Dan Gertrudes: So, it would be one hour of my time to 20 hours of a financial analyst's time.

Blake Oliver: Got it. And then that ratio is obviously lower for the other folks on the team.

Dan Gertrudes: Exactly. But it's a one-to-one, I guess, if you're at the bottom of that.

[00:08:15] The hierarchy at GrowthLab.

Blake Oliver: So, let's talk about then the hierarchy if you will, of this. So, I come into GrowthLab. I am a business major and maybe I've got like some experience doing a little bit of spreadsheeting. I've got enough accounting knowledge to be dangerous, but not enough to be boring. I have curiosity and I have the attitude that you said. So, who am I going to be reporting to? What kind of stuff am I going to be working on? What's a day in the life of your junior financial analyst?

Dan Gertrudes: Great. So, if you just recently joined us, you've recently graduated from college, you're probably in the junior FP&A analyst title role, you will be reporting not on an HR basis, but within the function, you'll be reporting into a senior FP&A analyst and/or a director of finance. That director of finance and senior FP&A analysts will be reporting into one of the CFOs. In this case, it's either myself, Steven or one of our other team members. And so today, we're only three layers deep. And I guess if you add interns, we kind of treat interns and junior FP&A analysts at the same level.

In terms of recruiting, you had asked earlier, how we approach, yes, we do quite a bit of college recruiting. I actually step into classes at universities, especially here at Brown University in Rhode Island, where I do teach young talent students about financial and business modelling and what the importance of business modelling is telling your story as an entrepreneur and grounding that story in financials.

[00:10:01] Talking to graduating college students about career options.

Dan Gertrudes: Why I went into that. So, part of our college recruiting program, the way we describe it is, so you can go into public, and you can spend two, three years there. And the beauty of going into public is you get to see a lot. The breadth of what you see is amazing.

Blake Oliver: You're talking about the conversation that you have with students when you are recruiting them.

Dan Gertrudes: This would be the conversation.

Blake Oliver: So that's one option is going to public, get that breadth.

Dan Gertrudes: Get that breath. But you don't usually get the intimacy. You don't go deep into that business model. On the contrary or on the flip side, if I may, you can go into corporate America and you can get yourself a corporate accounting job or a corporate financial analyst job. And then chances are you're going to be in that role for one to two years until you sort of move up the ladder.

But the nice thing about going into corporate is that you get to go really deep with that business model. You get to create intimacy with that environment. But you don't get to see a whole lot. And so those are the two sort of two sides of the range. The way we tend to describe the experience, your career road map here at GrowthLab, regardless if it's accounting or FP&A, is that you get the best of both worlds.

So, you're not getting yourself a hundred customers and different business models, you're probably going to have actively 10 to 20 different customers. But you get to go really deep with them because of that cadence. We're always in contact and we're deep into the business model and also into different functions within the business, regardless if it's HR, capital raising, product development, et cetera.

And that really gets the juices flowing for someone who's not in accounting. And once they want to be in finance and finance, but they don't want to go to that banking environment, highly structured, you're sort of like in a cubicle. I just recently hired someone who was really between GrowthLab and going to a top 20 bank here in the US. They ultimately came to us because of the exposure to different business models and the exposure to different functions, the building their business acumen when they're really young.

Blake Oliver: Yeah. It's a good way to position it, like in between having so many clients that you're overwhelmed, and you never really get to know them, that's public, and then often can be anyway, and then big public firms. And then you've got going into industry where it's just one company. So, you're giving them the option or the opportunity to get to know a bunch of different kinds of businesses.

Dan Gertrudes: To go wide and deep.

[00:12:41] How do you train new hires out of school?

Blake Oliver: Yeah, that's great. Okay. so, I'm sold, Dan. I want to work at GrowthLab. But I don't really have any experience, I'm coming straight out of school. Maybe I've done the internship or something. How do you train these folks to be able to do financial modelling? I mean because that's the core of the product that you are offering.

Dan Gertrudes: Right. So, I took a page out of my own experience when I was in my twenties. And I'm very grateful for the exposure I had in my twenties. I was fortunate enough to have a career in a management team at multiple companies that allowed me to be that fly on wall. Allowed me to observe and listen, help me build my business acumen. And I had plenty of time to become the spreadsheet, jockey modelling expert. And we kind of leveraged some of that in the beginning. So, if you had talked to me back in 2015, 2016, that's how we were grooming team members. It does a lot.

Blake Oliver: Letting them sit in on meetings, learning by observing you at work.

Dan Gertrudes: Right. Letting them sit in the meetings, how we approach things, different scenarios, dealing with hundreds of different business models, never mind personalities. That was great five years ago. And I don't think I would have done anything different, but I got to tell you that doesn't scale fast enough. But because it's very difficult to hire for this type of role, because this type of role, it's either all or nothing. To fill this type of role, you're looking for somebody who has 10 to 15 years of true finance FP&A experience, but yet this type of role doesn't really exist. It exists in corporate America, but you're only dealing with one business model, one customer, one management.

But to find this role, this function, these capabilities in say a public accounting, it's very difficult to find that. And so, we struggled with that in the beginning, to be honest. And so that's why we defaulted to sort of the longer, more prolonged onboarding process, training, and development process, which worked really well for our first two rounds. Today that's not the case. Today now that we have a more of a team, we just recently hired two more analysts back in August, September, and they're not partaking in meetings. They're not the fly on the wall. As a matter of fact, they're part of a small team and their number one job is to crank out models under the supervision of a director of finance.

So, this director of finance sort of splits his time about 25% focus on this team their sole job is they're literally in a room, cranking out models. The good news is it gets isolated. Nothing leaves that without a second, third set of eyes. Now, why is that level? Why can't we actually scale that? Because that's like a three-to-four-month process. I just had a conversation with one of them and it's amazing what they have learned in two to three months, less than that.

Blake Oliver: Well, they're getting to build models under the supervision of folks who really know what they're doing, that director of finance, and it's all getting reviewed and they're getting feedback. And I could see how, if that's all you're doing for a few months, you could get really, really good at it.

Dan Gertrudes: You get really, really good at it. And it is analogous to how back in 2014, 2015, how we were onboarding young talent to join the accounting and bookkeeping side of the business.

Blake Oliver: Learning by doing.

Dan Gertrudes: Learning by doing a very discreet set of inputs and deliverables. I used to call it a very short leash, 30-minute, 60-minute leash. And there's always a very high velocity feedback loop.

Blake Oliver: When you say leash, you mean they're going off and working on something coming back an hour later [crosstalk].

Dan Gertrudes: Exactly

Blake Oliver: Got it. Yeah. It's a lot better than just letting people go for a few days and hoping that they learn something.

Dan Gertrudes: And that works great in large companies, but not here.

Blake Oliver: Well, you don't have the time to [crosstalk].

Dan Gertrudes: I don't have the time.

Blake Oliver: What if they spend three days doing nothing useful?

Dan Gertrudes: And then you're going to spend a day on ravelling at all.

Blake Oliver: Okay. So that's the experience. Junior financial analyst. They come in; they learn by doing. They're in the room, they're building the financial models. And going back to our previous discussions, those business models are really the core of how you build forecasts and budgets that become part of this product-type service offering. So, it's really important that they learn how to do that from scratch.

Dan Gertrudes: Right. And they have no exposure to pay for performance, employee comp, annual strategic business planning. They're sort of just doing it. And as time goes on, you begin to open up their exposure to the bigger why. Why am I doing this? Why am I cranking out a five-year plan? How is that five-year plan part of something bigger? Now you begin to bring them in slowly into that cadence and that rigor, the team to deliver that service to the customer.

Blake Oliver: So that means I take it then after three to four months, they are now starting to be in those client meetings.

Dan Gertrudes: Yeah, exactly.

Blake Oliver: And who leads the meetings? Is it the senior financial analysts for most of them? I think I remember that's what you said last time.

Dan Gertrudes: So, it's really a function of the package that the customer has decided to pursue. if it is one of our two first packages, lower-level packages, then it would be a senior FP&A analyst and/or a director of finance. But then again, if they need higher-level conversation, dialogue around capital raising, cap tables, or pricings, contracts, then we as CFOs can spend that five or ten minutes with our team and or the customer adding additional value at no cost.

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[00:21:04] How long does it take to go from junior to senior financial analyst?

Blake Oliver: So how long do you anticipate it will take a junior financial analyst to mature into a senior financial analyst? Is it similar to a year or two that you might do in public accounting to go from staff one to staff two? Is it longer, shorter?

Dan Gertrudes: So, I think, again, we're still fortunate, Blake, that we're small enough and there's enough intimacy around the team and feedback loops that I can pretty much take a junior financial analyst and make that individual into a senior financial analyst with the ability to run at least low-level meetings.

Blake Oliver: And how soon can you do that?

Dan Gertrudes: 12 months

Blake Oliver: 12 months. Okay.

Dan Gertrudes: Easy. I would tell you, within six to eight months, we've already started allowing them to sort of interact with the customer directly, assuming they have the right attitude.

Blake Oliver: Well, that's important because they got to learn how to talk to clients at some point.

Dan Gertrudes: They do.

Blake Oliver: Sooner rather than later is probably for the best.

Dan Gertrudes: Yeah. And I'm a big believer in stretching.

Blake Oliver: Okay. So, let's say I've made it to senior financial analyst. We already said the big part of that is a customer relationship, especially those folks who are on the lower tier finance as a service plans that you have. What else am I doing as a senior financial analyst as part of my day-to-day?

Dan Gertrudes: Yeah. Good question. So first and foremost, you're there for the customer.

[00:22:41] How does a customer know who to go to with questions?

Blake Oliver: Oh, wait, I should ask this too. I'm curious. You've got the accounting team that does the books and you've got the finance team that does the planning. How does the customer interact on like a... What's the balance of that on a day-to-day or week-to-week basis? Does the customer know for accounting stuff, I go to this person, for finance stuff, I go to my senior financial analyst? I guess, how do you handle who gets what?

Dan Gertrudes: Yeah. And that's actually the basis of one of the reasons why we have taken a deeper look into our workflow altogether. But I would say if you are a full-service customer, but on the first or second tier without active CFO services, it probably feels a little more like 30, 40% accounting and 60, 70% FP&A. Why? Because the FP&A team has, at a minimum, two meetings per month with the customer. In the first three months, as we discussed earlier, you've got this intricate onboarding process where your customer is connecting with the FPA team at least once a week to build that model.

Whereas on the accounting side, after one or two initial accounting cycles bookkeeping closes, then that customer goes from the onboarding accounting team to the what I call the recurring accounting services team. And normally, it is obviously one financial close done by the controller or a senior accounting manager. And then behind the scenes, it's either a junior accountant or a bookkeeper that rarely has a lot of contact with the customer. So, on an intimate sort of one-to-one, it'd be like one meeting a month on the accounting and two to four on the FP&A side.

Blake Oliver: Got it. Okay. That makes sense.

Dan Gertrudes: So, FP&A is really like the dog wagging the tail here.

Blake Oliver: Okay. So, getting back to where we were going with this. Senior financial analyst, I'm having meetings with the client, I'm updating their financial model, I'm training junior financial analysts, maybe they're working on my clients with me. Anything else that springs to mind?

[00:24:54] Other tasks for junior and senior financial analysts.

Dan Gertrudes: So, you're ensuring that the workflow is accurate. You've got the right cadence. You're, coordinating with the accounting team if there are any changes. So, because you don't have one individual managing the customer relationship, and as you know, like in business, a lot of stuff comes up. So, if you're a scaling start-up going through capital raising, product development, customer acquisition, there's a whole lot of stuff happening.

And there are things that happen on the finance calls that aren't really happening on the accounting calls, things that are happening on the ops and sales calls that accounting has no visibility into. So, one of the things that a senior financial analyst has to do really, really well is making sure that information flow is happening across all teams, not to mention tax and CFO services. Because there are times, I mean, everyone's having multiple conversations with the customer.

Blake Oliver: Got it. So, this person-

Dan Gertrudes: That is the biggest trick in this service level.

Blake Oliver: Yeah. Keeping it all handled and stuff not getting dropped. So, this financial analyst person is also kind of responsible for just keeping it all together.

Dan Gertrudes: Keeping it all in together.

Blake Oliver: Okay. Got it. That's plenty to do there. That's for sure.

Dan Gertrudes: Yeah, it builds a lot of the softer skills. So, you're not coming into this with, this is how you do revenue recognition, this is how you close the books. You got to be able to come into this and say, okay, here's a cashflow model or a five-year plan that we already know off the bat is going to be wrong, but at least it's like the 80:20 rule. And then two, you got to make sure that the flow of information hits all parts of our team and that has captured somewhere.

[00:26:35] Compensation model for these junior and senior-level financial analysts.

Blake Oliver: Building an FPA practice. How much am I going to expect to pay for these folks, these roles?

Dan Gertrudes: Good question.

Blake Oliver: Yeah, what should I offer? To be competitive, I need to offer good compensation benefits to these financial analysts. What can you share with me that would help me do that?

Dan Gertrudes: So, I would say a junior financial analyst that has very limited experience.

Blake Oliver: Yeah, let's say straight out of school.

Dan Gertrudes: Straight out of school. You're looking between 35 and 50. And my voice just went down. You're looking at 35 to 50.

Blake Oliver: Yeah. Well, and that actually is not that far off from entry-level public accounting positions. It's kind of similar. And they're accepting that because they're going to learn a lot at the same time with the expectation of being able to grow in the firm. So, once you've gotten past your 12-month period of learning, I assume you bump them up once they become seniors.

Dan Gertrudes: Yeah. I mean, so Blake, one of the risks inherently in our industry is you train people, and they leave.

Blake Oliver: All the time.

Dan Gertrudes: So, it's got to be a balance. So, if you know you're going to be spending hours on in training and developing so that they can be at the top of the game in 12 to 24 months, that earnings curve is quite steep. So, have you ever seen a hockey stick curve?

Blake Oliver: Yeah.

Dan Gertrudes: It's my financial analyst.

Blake Oliver: So, the better they do, the more they can make.

Dan Gertrudes: Right. And then we actually put them on a corporate bonus program. So, our typical senior financial planning analysis analyst will be on a 10% corporate program.

Blake Oliver: So, 10% of their compensation is performance-based.

Dan Gertrudes: 10% of their salary would be performance-based.

Blake Oliver: So, I'm guaranteed 90%, and then the other 10%, I can earn by hitting certain objectives, targets.

Dan Gertrudes: And our targets are all 100% revenue. That's all we care about on that side of the business. 100% revenue. And if you hit stretched targets, you get two times kicker, two times multiplier of your bonus.

Blake Oliver: Okay. So, I can earn 20%.

Dan Gertrudes: Yeah.

Blake Oliver: Okay. Got it. And it's all revenue based. Do you allocate revenue from the clients then down to the analysts that's responsible for that relationship? How do you do it?

Dan Gertrudes: No, I don't. For me, it would be we care about the entire system and less about whether one customer or one individual is "profitable".

Blake Oliver: Okay. So, I'm trying to understand how you do these calculations because... So, I'm a financial analyst. I've got, what, a dozen clients, maybe 20. So, we know the revenue as a firm for each of those clients. So, you just sum up that and then that's like my target. I have a target, and if I exceed that, then I'm good or?

Dan Gertrudes: So, we only have division-level targets. So, we don't have team-level, we don't have individual-level, it is division-level. So, the entire financial plan analysis team has their revenue target.

Blake Oliver: I see.

Dan Gertrudes: Because we want to make sure that, one, we're acting as a team. If I've got this project team off to the side that are building the models, regardless of what customers assigned to them, and then I've got the senior analysts that are managing the relationships, we're all in it together.

Blake Oliver: Yeah. Well, that's interesting because that's very different than an hourly billing type of performance compensation model, which is what we're used to often in public accounting. And so, you incentivize the team. You say here, as a team, finance team, if you hit this revenue threshold, then you're going to get your bonus, and if you exceed this, then here's the kicker. And so, everyone works together to increase the revenue.

[00:30:37] How they manage employees to customer work time.

Dan Gertrudes: So, the way we manage gross margin and capacity needs, capacity utilization based on customer flow is we take a page from like lean six Sigma tack time. And so, every customer, we plan that that one customer is going to require at least two hours a week of a senior FP&A analyst and four hours a week of a junior FP&A analyst. Especially in the beginning as onboarding. As time goes on, now you can take that allocation per week, multiply it times two. So, you're looking at eight hours. And we do this in chunks and blocks. So, you have two four-hour blocks each day for the junior. You've got four two-hour blocks for the senior. So now you can begin to build your model based on that information.

Blake Oliver: Yeah. And so basically like a senior, is it most going to be able to handle like four clients a day, if they were able to do it all at once?

Dan Gertrudes: Right. 20 a month.

Blake Oliver: Yeah. 20 would be the max.

Dan Gertrudes: The max.

Blake Oliver: Gotcha. And that's if they're hustling, I imagine.

Dan Gertrudes: And you got to like it. There's development, there's other learnings, Wall Street Journal, go read a book.

Blake Oliver: Okay. That's on their own time.

Dan Gertrudes: No. You're not modelling, make sure you're picking up The Wall Street Journal.

Blake Oliver: That's great. And then you said this earlier, the CFO finance director folks, it's a one to twenty leverage ratio. Well, it comes down in the minutes per client, per day, I suppose, for those folks, but we could do the math and figure it out. I'm not good at doing math on the fly, so I'm not going to try it. I need my spreadsheet open. So that all makes sense. That's great. That's really helpful. And with that team, you are able to a book of business for this finance as a service productized offering and you know what your costs are because you got fixed salaries for the staff.

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[00:33:47] How do you price these services?

Blake Oliver: Well, now we got to talk about the revenue portion. How do we price this stuff? This is probably what everybody has been waiting to hear for the last three sessions that we have done this. So, what can you tell me about the different tiers that you've mentioned? You've got some starter tiers and doing fixed fee pricing? What is your secret recipe here for coming up with the price?

Dan Gertrudes: Yeah. So, the secret is-

Blake Oliver: Let's start at the bottom. We'll start with the basic.

Dan Gertrudes: Let's start at the bottom. So, let's start at the bottom. With full disclosure, pricing is an art, not a science.

Blake Oliver: Yes, indeed.

Dan Gertrudes: Two, you got to know your customer, the persona. Our goal here, at least at our company, is to bring on companies that are in that seed Series A that are beginning to appreciate the value of planning, but not just planning for just one-time event, but the rigors of planning. And it needs to be at a price point that sense to them initially, because the FP&A package is truly a hook for bigger and better things later on. So, we have priced out our FP&A package one and package two. I think the marketing team calls it something else. But for simplicity, you got the first and the second tier. And I believe the first is priced at 1,500, and the second is priced at 2,000. Now, what do I get for that? Well, again, you kind of-

Blake Oliver: Sorry, you said tier one is 1,500.

Dan Gertrudes: 1,500 for tier one and 2,000 for tier two.

Blake Oliver: So that's not a huge difference in the two tiers.

Dan Gertrudes: It's not, but that extra $500 allows for that additional meeting and the prep work that goes into that additional meeting. So, it gives us a little bit of a buffer.

Blake Oliver: And that's where you add in the finance director CFO level input.

Dan Gertrudes: Not so much the CFO level, but it allows us to more elevated folks and additional cadence and actually more output. Instead of just like investor reporting, now you're talking about budgets, actuals, maybe presentation to the investors, board meetings, et cetera. So, without the need to have someone like myself taking the lead on that project, now it's more of a collaborative effort between the business owner and their teams like finance team.

[00:36:30] What are customers getting with a tier-one plan?

Blake Oliver: Okay. So, let's go to tier one. I'm getting a junior financial analyst obviously, and I take it I'm getting the senior.

Dan Gertrudes: Correct.

Blake Oliver: Okay. So, we got a junior and a senior. No higher-level folks at that point. Am I right?

Dan Gertrudes: No. But again, we're not the type where if you call, I'm going to charge you every six minutes for the call. But I usually tell folks one, I enjoy speaking to the customers, and two, it's just a great opportunity to do a check-in, but no, it does not officially include CFO's service.

Blake Oliver: You're not getting the regular check-in with the CFO, the regular. Got it. It's just as needed. Okay. 1500 a month. Let's talk about what else is in that package. What is the product?

Dan Gertrudes: So definitely a three-year long-range plan with not an entire suite of drivers. It's going to be a tighter plan.

Blake Oliver: Simplified.

Dan Gertrudes: Simplified. And then coming out of that, you're probably not even going to have a liquidity capital raising tronches in there. But it's a three-year blend. Then you get your annual operating plan and then you got your annual operating plan updated and you get your rolling forecast every month.

Blake Oliver: That seems simple enough. So simplified through your long-range plan, but you're not doing the fundraising component of that where that would mean like, okay, what if we went out and raised a bunch of money, we got alone, all this financing stuff, that's complicated

Dan Gertrudes: Scenario planning. Yeah.

Blake Oliver: This is more just like business as it is, how will it go over the next three years? And then simplified drivers. So, you're not doing crazy revenue forecasting with all sorts of different products and services and whatnot.

Dan Gertrudes: Yeah. Plain vanilla planning.

Blake Oliver: Got it. And then you get the annual operating plan, which is the budget. That includes then updating that. How often do you update it, quarterly, annually?

Dan Gertrudes: I'm a big fan of updating it once a year in June, as of July 1st. And it really allows you to take inventory of the first six months. And if you're bonusing out or paying for performance, people are banking on your annual operating plan, your budget for you to hit your budget. So, it's up to you as a management team to figure out what you're going to do to hit that budget in the last six months of the year if you're not on target.

Blake Oliver: And then the last thing is the rolling forecast. And that is basically the financial reporting package, the management reports with the... Do you forecast out 12 months at a time each time you issue?

Dan Gertrudes: Yeah.

Blake Oliver: Or six months?

Dan Gertrudes: Yes. So now it's usually through year-end.

Blake Oliver: Through year-end. Okay. Got it.

Dan Gertrudes: But you always capture the outer months.

Blake Oliver: And you're using FP&A software, using drafts, so it's easy to do that rolling forecast as part of the regular management reports because it's just feeding in the annual operating plan and the forecast. Okay. All right, that's great. Very helpful.

[00:39:31] What is added at tier two?

Blake Oliver: So, now at the tier two, 2000 a month, you're adding in CFO.

Dan Gertrudes: Yeah.

Blake Oliver: Not CFO.

Dan Gertrudes: You're not adding CFO, but you're adding in a more robust staffing roadmap. You're adding in some pay for performance comp and dashboards, conversion rates off of your rev ops team or your inbound marketing. You're going deeper into that second derivative of the drivers, not just taking it at face value. You're also-

Blake Oliver: That's really interesting. You said second derivative drivers. And I know a lot of folks who took calculus who hated it, probably, their brains turn off when they hear derivative. Or if you had to study that for the CPA exam. Accounting for derivatives, I never learned that.

Dan Gertrudes: Never learned that.

Blake Oliver: Luckily, it didn't show up on the exam, so I was good.

[00:40:21] Examples of a simple and second derivative type of driver.

Blake Oliver: When you say second derivative drivers, like give me an example of what would be a simple driver and then what would be a second derivative type of [crosstalk].

Dan Gertrudes: So, the easiest one would be, I expect my revenue to increase by 25%. Okay, great. So that's-

Blake Oliver: Easy.

Dan Gertrudes: Easy. But then why? The why begins to unravel, peel back the onion. And the why could be, well, I expect to acquire X amount of customers. Okay, great. How are you acquiring those customers? What's the customer acquisition costs? Okay. So now you're going, you're taking it back deeper and deeper into three, four layers of that original driver, which was, I expect my revenue increased by 25.

[00:41:06] What is in tier three?

Blake Oliver: Okay. So, tier one, tier two, is there a tier-three?

Dan Gertrudes: There is. And so, tier three is where we get into more of the CFO role. So, our tier three, I believe, starts at 4,000 and that includes the second package of the FP&A layering on a more active CFO role where the CFO is actually with a customer on a weekly basis for a half hour or 45 minutes. There's definitely going to be meetings once a week. Reporting requirements are going to be more robust. And usually, there's a board meeting, there's investor report out. Now, the good news is because a lot of folks will tell me, "Dan you're under-pricing that though." And I said, "Well, yeah, if I was doing all the work myself, I would be under-pricing that, but I'm not doing all the work myself."

Blake Oliver: Right because you're leveraged one to twenty.

Dan Gertrudes: I'm leveraged. So, as I'm levering my time, I'm able to provide more with less. And so, I always say when you hire some of the fractional CFOs, especially like five, ten years ago, and you'd pay them $1,500 per diem, or you're paying 300, $400 an hour for fractional CFOs, 80% of the time, you find those individuals not really working on business strategy, but working on things that financial analysts should be doing controllers should be doing, doing journal entries, putting together spreadsheets. That's not what you need a CFO for.

And so, what we have decided and what we've done is we've taken essentially what you would get from a part-time CFO that you have access to four times a month per diem pricing, which could be upwards of 6,000, $8,000 per month. We've taken that and what you get from that, and we've been able to give you the same, but at a lower cost point.

[00:43:07] Does this include accounting?

Blake Oliver: I should ask something very important, which is, does this include the accounting or is this just for the FP&A?

Dan Gertrudes: This is just the FP&A. And the reason why it's just the FP&A is I can really templatize if I've got my annual strategic business cycle as my framework. This is my guiding light, this is my beacon. And then I've got what I'm going to do. The underlying tasks or work projects that you're going to do either throughout the year or in each month. I can pretty much put a bookmark on that. On the accounting, good luck. Because growing businesses every month, they're adding a new charter of account, they're opening up a new bank account, a new credit card, they got a new employee, and revenue is growing expenses are growing. So, it was very difficult to just put one flat fee, as you know, obviously.

Blake Oliver: So, for the accounting, are you doing fixed fees? Are you doing hourly or combination?

Dan Gertrudes: 100% fixed fees.

Blake Oliver: Okay. On everything. Yeah.

[00:44:04] Who is their ideal customer?

Dan Gertrudes: And I love it because it forces us, as a service provider, to spend a little bit of extra time scoping the customer out. And maybe I don't need to leave money on the table.

Blake Oliver: Is there a tier four?

Dan Gertrudes: No. So, the tier four would... I mean, there are variations. So, I said our starting price would be 4,000. I mean, we've had customers that are 20,000 a month. Although we don't like them. We love those customers, but we're not in pursuit of those customers. Those tend to be the anomaly now. Maybe five years ago-

Blake Oliver: Yeah, it's not scalable. It's not scalable.

Dan Gertrudes: It's not scalable. So, our sweet spot is really that 2,000 to 3,000 up to 5,000 a month type of customer. That's what we love here.

Blake Oliver: Well, and it makes so much sense from a customer standpoint too, because what are the alternatives that they have? They could go and get a fractional CFO and pay $300 to $500 an hour, or they could hire a CFO who's going to end up spending most of their time doing non-CFO work. So, it's not a good use of funds. It's very expensive to hire somebody who's going to spend most of their time doing controller or senior accountant level work. And so really, you're providing them what is a better experience because it's... I mean, I would rather pay a fixed fee than pay $300 or $500 an hour.

Dan Gertrudes: Yeah. Over this series, we've talked about, in one way or another, like cadence, the rigor, and then the team. Today, we spend more time on talking about the team and hiring and how you organize that. But the reason why we can do what we do with our team and have 22-year-olds right out of college working on your model is because you have all the other stuff that we talked about previously. You've got systems like Jirav, you've got the cadence, you've got workflow systems. So, I'm not spending hours looking for a broken link or version control.

Blake Oliver: Version control on spreadsheets or emailing the spreadsheets around. I mean, to me, it's sort of similar from the bookkeeping world. I started out in bookkeeping, emailing QuickBooks, desktop files back and forth. And we would run into version control issues. Maybe they'd send me an accountant's copy and then make a change.

Dan Gertrudes: Or Mac to PC.

Blake Oliver: Yeah. And we couldn't merge it back and then we'd lose days of work. And we've eliminated that with the right technology. And we haven't talked a lot about the tech. Maybe that would be a good future episode. But what we wanted to talk about here was the productization of the offering. And I think we've got a pretty good idea now of what that is.

[00:46:45] Summary of everything GLs are offering as a service.

Blake Oliver: So, let's just summarize it again just to be super clear about what it is that we are offering here. We are giving people a long-range plan. We are giving them a 12-month annual budget. We are combining that with our management reports, our financial reports to produce a rolling forecast that shows them where they're going to be at the end of every year, at the end of the year.

Dan Gertrudes: You're doing it every month at the same times of the year.

Blake Oliver: Every month and meeting with them twice a month to go over this stuff, whatever they need. One meeting is the let's go over your financial reports. The other meeting is we'll handle all the other stuff that comes up. And there's plenty to talk about throughout the year. And you've got this ongoing relationship with folks with businesses that really need this kind of service, that need this help and can't afford to hire a CFO.

Dan Gertrudes: Limit scope creep.

Blake Oliver: What limits the scope creep?

Dan Gertrudes: So, I hear from other companies that their biggest challenge is being able to charge to get paid for services, especially ad hoc services that they're providing. If there's one thing the pandemic has shown accounting firms, is you got to get paid for the services and value you provide.

Blake Oliver: Yeah. Well, and a lot of firms, during the pandemic, they didn't actually get paid for their PPP consulting. Amazingly, a huge chunk just didn't know how to charge for it. But you are basically already charging for it. Or did you do extra? I'm curious about that.

Dan Gertrudes: They've been on the customer, actually. If you were a full-service FP&A with CFO customers, we actually did not charge for ERTCs, PPPs. We didn't have to because it was just part of what we were doing. We had access to it. and so, we didn't charge for customers that were in the higher-level packages, we did charge for those customers that were bookkeeping or just accounting or just tax. We did charge extra. We did not do success fees though; it was all flat fee. It was anywhere between 1,000–2,500 for a normal ERTC. And there was a lot of work that went into the ERTCs and PPP and more importantly, never mind the work. It was a strategy and optimizing PPP versus ERTC.

Blake Oliver: Yes. Yes.

Dan Gertrudes: And a lot of people, they move too quick, and we told all of our customers, "Do not file for forgiveness until the dust has settled on your payroll for that quarter so that we know what's the exchange of ERTC versus PPP expenses."

Blake Oliver: Yeah. And I'm sure they appreciated that foresight when it turned out that you really needed to pick one or the other, at least at the beginning.

Dan Gertrudes: They appreciated it. They're still waiting for the money, though.

Blake Oliver: Well, fortunately, our listeners don't have to wait for your insights, Dan, because you have already shared them with us in these past three sessions. So, thank you so much.

Dan Gertrudes: Yeah, no, I appreciate it. Thanks, Blake. This was great.

Blake Oliver: Yeah. Hey, by the way, if our listeners would like to learn more about GrowthLab and get in touch with you online, where is the best place for them to do that?

Dan Gertrudes: Yeah, totally. So, you can always go to our website at growthlabfinancial.com, or you can shoot me an email at dan@growthlabfinancial.com. And of course, on LinkedIn.

Blake Oliver: Thanks, Dan.

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

[00:50:23] Thanks for listening, you can now earn free CPE credit by going to EarmarkCPE.com.

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.

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