episode 178 | Business Controls | CAS | Transcript | Rea CPA

episode 178 – transcript

Dave Cain:               Welcome to unsuitable on Rea Radio, the award winning financial services and business advisory podcast that challenges your old school business practices and their traditional business suit culture.

Dave:               Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie, while offering you meaningful, modern solutions to help enhance your company’s growth.

Dave:               And today I’m your host, Dave Cain. Once upon a time, the majority of businesses had a product or service to sell and employees to sell it and a back office to ensure that the business was functioning in a way that would keep cash flowing in and out in an effective manner. The times they are a-changing. In fact, some businesses no longer maintain a back office. Instead, they are turning to outside providers for functions like accounts payable, accounts receivable, payroll, and metrics analysis.

Dave:               In return, business owners are gaining more time to focus on the work they’re passionate about, peace of mind knowing that their bills and employees will be paid on time each and every day, and timely access to vital data to help manage their business better.

Dave:               Matt Long, a principal on Rea’s Client Advisory Services team in Wooster, Ohio joins us today to talk about the benefits associated with outsourcing the back office and why more businesses are choosing this route. Welcome to unsuitable, Matt.

Matt Long:               Thanks, Dave. Appreciate you guys having me.

Dave:               Good to have you here. We want to find out about you know, client advisory services and we want to dig into that a little bit. But first I understand, prior to becoming a CPA or you weren’t, in a second life, would want to be a car mechanic. Is that kind of right up your alley?

Matt:               Yeah, it is. My dad had a shop when I was young. I spent my summers down there turning wrenches with him and learning a lot about cars and had a lot of fun.

Dave:               Yeah, and we were talking off mic, you’ve got a couple of things you’re working on. Wanna share what kind of vehicles you’re working on?

Matt:               Yeah, I have a couple toys. 2002 Camaro SS and a 85 C-10 Chevy truck. Keep me busy and take the stress off during tax season and when things get a little rough.

Dave:               Yeah. You know, the curiosity is how you kind of create a little slush fund to keep care of these toys, kind of outside the family funds.

Matt:               I’m a saver.

Dave:               You’re a saver, huh?

Matt:               And sometimes I splurge a little and I always keep my eye out so I’m coming across deals and can’t pass them up.

Dave:               Good. Good for you. So you know we want to talk about client advisory service in the back office. Want to maybe start with, you’re an entrepreneur, you know, you came to Rea to build this part of our practice. So you know, maybe a little commercial. Tell us a little bit about client advisory services on an overview and then we’ll dig into it.

Matt:               I’m happy to work on building our client advisory services group out. There’s a lot of potential in this space and we’re seeing more and more demand for it.

Matt:               Really, there’s this misnomer of what client advisory services is. A lot of people think it’s strictly the transactional accounting and the day to day accounting. And while that’s certainly a component of it, we offer a lot more, including controllership level services, CFO level services, really be a true business advisor for our clients.

Dave:               So one of the things, and we talk a lot about it on the podcast, is the chase for talent, trying to find talent, especially financial talent, whether it’s a bookkeeper, a controller, assistant controller, CFO, and it’s very challenging out there.And I think your group has risen and listened to the demands and some of the concerns in the marketplace and develop this service accordingly.

Matt:               Yeah, absolutely. And we have clients that approach us and we’ll look to us for really a short term option because they’ve had a bookkeeper or controller leave their company. And once we get in there and start really evaluating things and get things humming, a lot of times it just makes more sense to keep working with us.

Matt:               You know, you’re right. It is tough finding really good people, especially in the financial and accounting industries, and mainly what we’re seeing is that these clients are struggling with keeping good people.

Dave:               Sure.

Matt:               Especially with the younger generation really looking for opportunities and not as loyal per se and also with these companies growing and not being able to keep up with the demand.

Dave:               You know, whenever the term outsourcing comes up, there’s always this misnomer of, oh my gosh, that’s so costly, that’s going to be outside the budget. And I think we got to back up on that conversation, that type of thinking, that it probably is way better on your budget than like you said, turnover after turnover of employees that maybe aren’t qualified to do that work.

Matt:               Well, yeah, that’s a good point. And I think to piggyback off that, a lot of these businesses have a bookkeeper, but they don’t really need a full time bookkeeper. They may only need a bookkeeper for 20 hours a week, but yet they have a full time bookkeeper and they’re kind of keeping them busy with some HR functions or some other functions. And what we’re finding is we can come in, provide that bookkeeping role, do it in under 20 hours and do it much cheaper than what our clients are paying for their full time people.

Dave:               And plus, you have CPA experience you’re bringing to the table. So you’re getting both kind of the bookkeeping, the compliance and the analytical review that maybe is missing, if you decided to do it yourself internally.

Matt:               Yeah. And really, that’s the end game for us. It’s not necessarily doing the transactional work or producing the financial statements. It’s let’s use them as a tool and let’s make the financial statements work for us to make decisions and try to help grow our businesses, make them more profitable, help with cash flows, those type of things.

Matt:               And to one other point there is we have some really great folks within our firm with a lot of industry expertise and a lot of times we’ll lean on those folks for their industry knowledge to make sure the clients are getting service well and really is a nice complement to what we’re doing.

Dave:               You know, that’s a good point. Not only do you bring the services, the debits and credits side of it, but you can bring the industry expertise, which again, if I’m a client looking for a solution, I kind of like that.

Matt:               Yeah. It’s pretty cool and you know, it’s very rewarding when we’re able to help our clients and help them with their businesses, making them understand the importance of the financials, helping them read the financials and when we see our clients’ operations improve, it’s a good feeling.

Dave:               Sure. You know, the other thing I was thinking about as I was reading our notes in preparation for today is this also brings a level of internal control inside a business that probably wasn’t there before.

Matt:               Yeah. All too many times we’ll have one or two people within these clients’ businesses that are really running the show and kind of doing everything, from processing the invoices to cutting checks to making deposits and there’s really no oversight of it at all. And we can provide that oversight. We can provide those segregation of duties and really help develop processes so that our clients and these business owners feel comfortable that their cash is not being mistreated or misused.

Dave:               Right. I want to go back, that lack of segregation of duties, which is also often present in a lot of businesses that we work with and we all know from experience that that is a extreme internal control weakness.

Matt:               Yeah, and unfortunately you never find out about it until it’s too late.

Dave:               Yeah, too late. Oops.

Matt:               And then it’s, you’re doing damage control and some very upset folks having to try to deal with.

Dave:               Okay. I’m going to talk a little bit about how your team, you know, the adaptability. You move around from industry to industry, but if I want to sit down, bring you guys to the table and look at a solution, where do you start heart?

Matt:               Yeah, that’s a great question. Really, the first thing we do is come in and evaluate your current processes, your current system and your current state of things. Take a look at what’s working well and what isn’t working well. A lot of times, recommend systems that’ll be more efficient and then help implement those systems and train the current personnel on the software, develop processes and train them on the processes and then really find what that sweet spot is and what makes sense for the client from a standpoint of what we should handle versus what they should handle, because we want to do what makes the most sense for our clients.

Dave:               Now, as far as pricing and fee structure and again, this is kind of a general comment, do you pretty much work out something where it’s a flat fee, a fixed fee for me each and every month, so I know I can put it in the budget and that’s what it is, no surprises?

Matt:               Yup. That’s exactly how we approach it. I use the term predictable fees because it’s tough to have a fixed fee, because you never know what’s going to be thrown at you. But really try to use a fee that the clients are comfortable with and that they can budget for and that’s palatable for them.

Dave:               Right, right. It’s adapting to what they are looking for.

Matt:               Exactly.

Dave:               So, how big is technology play in the services you provide? Do you have to be on site or do you do a lot of cloud base stuff?

Matt:               So, we really tailor our solutions to what our clients are looking for. In most cases, we can do everything remotely. We do have clients that want us on site and we’re happy to be there.

Matt:               Technology is a critical, critical component in driving all of this. It creates many efficiencies. It also helps us with having transparency with it all. And without the technology, we’re just not as efficient. We need to reduce the manual entry as much as possible because by reducing the manual entry, we’re getting more accurate financials, more realtime financials, and really helping our clients have that ability to manage their business in real time.

Dave:               Sure. Again, with your experience and your travels throughout the state of Ohio, you got any horror stories to tell us as you went in and looked at systems and you’re kind of laughing. I know you’ve got a couple. Try to think, change the name. How do I share this with the group?

Matt:               I’ll keep the names out of it. I’ll use a general statement to be nice. A lot of times, too many times, we come in and our clients have no accounting records at all and have been managing their business through their bank statements or their online banking and they’ve been able to do so for the years that they’ve been in business because they’re a really good at what they do. They’re really good at trades. They’re a really good mechanic, whatever the case may be, but they’re just not business savvy enough or have never about what that next step is and implementing accounting systems.

Matt:               And so a lot of times, it’s surprising to see that that these business owners are in this position, but it’s happening all too often.

Dave:               Right. What kind of software are you guys using?

Matt:               Well, we have a preferred tech stack. A lot of times that’ll include QuickBooks Online or Intact as the accounting software system, and then we try to layer on other applications to again, eliminate the data entry.

Matt:               Bill.com, we use for most of our clients and has been a great tool. We also use Expensify. We also use SOS Inventory for clients that have inventory and may need an ERP type system.

Dave:               Oh, okay. I was gonna touch base on the inventory. Good. You guys got all kinds of tools and tricks of the trade, but again from our experience and you find that inventory, it’s one of those balance sheet items that’s probably not tracked as accurately as it should be. And is that kind of an area of concern and focus for you guys?

Matt:               Well, like I had mentioned earlier, the end game is let’s help our clients and these business owners understand their financials and manage their business. And when you’re dealing with clients that have inventory, that’s what’s driving their business. And when they don’t have a handle on their inventory, it’s kinda throwing darts at the wall with your eyes closed. You really have no idea where you really stand and getting a handle on that inventory is going to really help from a cash-flow perspective and from a profitability perspective. We do see that quite often.

Dave:               You know, if I was a business owner, let’s say that I’m in the market for controller and I go out in the marketplace and try to find a good one. What do I have to pay on the open market for a controller? Got a feel? Is that 100K? Somewhere in there?

Matt:               Yeah, you’re looking somewhere probably between 80 and 140 and that’s a pretty wide range and it varies but you pay for what you get, or you get what you pay for.

Matt:               What you’re not considering there is all the benefits, the training that goes involved and all of that. So really when you’re kind of talking all in, you’re probably closer to 150, 175,000.

Dave:               If you can find that person.

Matt:               If you can find that person.

Dave:               And if they’re any good.

Matt:               And if they’re any good and they’re going to stick around.

Dave:               Yeah. And so again, there’s a cost versus benefit issue that your team can bring in. There’s going to be certainly a cost but it’s going to be less than what you’re going to find on the open market.

Matt:               Typically.

Dave:               And if somebody gets sick, somebody quits, maybe it’s ill. Your team provides that solution. The accounting services doesn’t miss a beat within that company.

Matt:               Yeah, because we have a team and a pretty deep bench, we’re able to handle things like that and not have the transition or the holes in being able to help our clients stabilize their companies.

Dave:               Yeah. This sounds like a service that’s kind of reserved for large manufacturing companies, but is it really? What level of businesses can you guys adapt the service to?

Matt:               Well, I’m confident we can adapt our services for any business and it’s quite the opposite when when you speak of this might just be best for a large company. Most of the time, we’re really adding the most value for these small and medium sized businesses. The ones that, like I said earlier, don’t need a full time bookkeeper or a full time accounting department, don’t have the need for a CFO level services full time, where we can come in and provide the services we need to for them to be able to get the expertise they need.

Dave:               So you’ll match it up and put a program in place.

Matt:               Yep. And we really do work in just about any industry: service based businesses, like you had said earlier, businesses with inventory, like manufacturers or distributors, professional service firms, those types of things.

Dave:               You’d said earlier about less work because of the technology, better data, more real time, more accurate financials, I think again is a benefit to not only the business owner but the lenders, the users of those financial statements. Plus, I think if an owner is talking about succession planning, you can produce those documents and they’re pretty good and they’re very, very accurate. So I think it brings value to that business.

Matt:               Absolutely. And we have had quite a few referrals our way from bankers and the like, where they just don’t have a lot of trust and confidence in their client’s financial statements and they want us to come in and take a look at things and see how we can get a strong, accurate set of financial statements of are them to have some confidence in.

Dave:               Now when we begin the service, you always hear the term or the terms tossed around, While the firm is no longer independent in regards to that client. Sometimes there’s some negative connotations regarding that statement, but in a way when we become less independent, I think sometimes we become way more valuable to the company. Can you comment on that?

Matt:               Yeah, so it is something we’re definitely aware of and we consider in every engagement that we work on. In some cases, we can remain independent and make sure that we’re being very deliberate in how we’re delivering our services so that we stay independent. In other cases, we can’t stay independent and provide the service and the value that we want to. And in my mind, you can’t really be a true business advisor for our clients while staying independent.

Dave:               Right and I think as a pool our industry has wrestled with that. I mean not being totally independent is kind of a good thing because that means you’re digging into the data, you’re spending a lot of time with management, you’re helping them make decisions, you’re helping them make hires and very critical decisions and I think that’s a good thing, eventually.

Matt:               And to piggyback off that, I’ll just say we have the client’s best interest in mind and keep it just simple as that.

Dave:               You know, if I wanted to start the process to outsource my accounting team or portion of the accounting services, give me an idea. How long does that take from start to finish, until we turn key and get rolling?

Matt:               Well, there is time involved in it and making sure that we’re setting up the the best solution for our clients and evaluating all solutions on the table. We can do it in as little as two weeks, as long as a month. It really depends on the client and how fast they want to move. I’m a big believer in not trying to do too much too quick, because it will overwhelm the clients and change is hard and so we want to make sure that our clients are comfortable with it.

Dave:               You know, we talked about adaptability and less work, better data, I want to kind of wrap up in the next few minutes about proactive business practices instead of being reactive. Let’s talk about that for a minute. I think your client advisory services is a proactive business idea. Am I on target there?

Matt:               Absolutely and that’s important to us. You know, tie it into cars. We’re trying to look through the windshield and not through the rear view mirror and focus on what’s ahead of us and how we can be best suited for it, versus looking in the rear view mirror, interpreting this data that’s two months old, three months old, six months old, because it’s not as useful when you’re looking at financials that are not as real time.

Dave:               You know, reality out there. What do you see, maybe two or three of the worst practices you’re seeing behind the scenes in an accounting department that you think, Oh boy, I can fix that.

Dave:               Well, and I know you can fix just about anything. You’re a little bit cocky, you can get it, man.

Matt:               I’m confident. Confident in our team, too. We have a really strong team and so it’s not me, it’s the team.

Matt:               I would say to answer your question, not having the segregation of duties and having the controls in place is one thing that always scares me. And going back to the technology, manually inputting a lot of this day to day transactional information, it just makes me want to pull my hair out, because it could be done so much more efficiently and so much cheaper.

Dave:               Right, and again, I want to just kind of revisit that lack of segregation of duties. I know we’ve talked about that a number of times. I think that’s very, very critical as we move forward in this whole process.

Matt:               Yeah, I certainly do too. And it’s something that we’re considering with all of our clients and we’re bringing up to them and asking them what exactly they’re looking for and giving them recommendations on what we think would be appropriate.

Dave:               You know, lean on you for a piece of advice. We hear from our clients, Oh I can’t get the books closed, at the end of the month or the end of the year. Realistically, when should those books close? At the end of each month. Let’s talk about that, because it’s all over the board.

Matt:               Yeah, that’s a great question. And clients often ask that. And for me the expectation is that we’re closing it within 10 days, not 10 business days, 10 days, when we first start working with our clients, with the goal of getting that down to five days. There’s no real reason we can’t, unless you’re not keeping up with the accounting on a day to day, real time basis.

Dave:               What about dashboards? Can you help me set up some dashboards and flash reports each and every day, each and every week?

Matt:               Yup. There’s some slick software out there and it works really, really well and a lot of times that’s really what these decision makers and these business owners are looking for. They don’t need to get a full set of financial statements to have a good picture of where their business is at. They just want to see on a weekly basis, where do my sales compare to last year at this time? What do my margins look like compared to last month? And if we can keep it very high level on these dashboards that are very easy to understand and interpret, our clients really seem to like that.

Dave:               And good financial data helps with good planning, good business planning, a good tax planning, good succession planning, adds value to the overall business.

Matt:               Absolutely. They all into each other and go hand in hand and it’s ongoing, right? So it’s not like we’re coming in on a project basis. We’re coming in and being that advisor for the long term and being very proactive to think about what tax planning strategies do we need to be thinking about or implement? How can we make sure we’re staying in compliance and paying the lowest tax and pulling in our folks from our other departments that know that stuff frankly a lot better than I do.

Dave:               Right. And you’ll travel around the state any time, any day to talk about this. I think you love the whole challenge of getting that back room up and running and very efficient.

Matt:               Yep. It’s a lot of fun. It is challenging, but it’s really rewarding when it goes well and I will travel anywhere and we’ll talk to anyone about this. It’s a lot of fun.

Dave:               Okay. Let’s close. Best piece of advice. Give me one piece of advice for 2019.

Matt:               I would say continue to stay aggressive, while knowing that there are some obstacles ahead.

Dave:               Great. Our guest today has been Matt Long with Rea & Associates in Wooster, Ohio. Talking about your businesses back office. Take it or leave it and I think there’s some good opportunities to have further conversations with Matt.

Dave:               Again, thanks for joining us, Matt. Very informative. There are so many reasons a business might choose to outsource their back office functions. I hope more people will reach out to you to find if this option makes sense for them and their business and ultimately impacts the bottom line and the value of the business and give back some valuable time to the business owner. The benefits are certainly substantial.

Dave:               Listeners, what do you think about client advisory service and the potential cloud sourcing? We’d love to know. Leave your comment on today’s episode and before you click on another episode or visit another website, take a moment to like, to subscribe to and share today’s episode with a colleague.

Dave:               Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box.

Disclaimer:         The views expressed on unsuitable on Rea Radio are our own and do not necessarily reflect the views of Rea & Associates. The podcast is for informational and educational purposes only and is not intended to replace the professional advice he would receive elsewhere. Consult with a trusted advisor about your unique situation, so they can expertly guide you to the best solution for your specific circumstance.