042 | Build and Scale an Empire: Jody Grunden’s Blueprint for Success

00:07 – Patrick (Host)
Welcome back to the Vital Strategies Podcast. I’m your host, patrick Lonergan, and in today’s episode, we’re learning what it takes to run a successful business with Jody Grunden. Jody runs a virtual CPA CFO practice. Jody didn’t go virtual recently. This was well before the pandemic. He built a virtual team starting in 2004. Jody shares his insights into the four key metrics for growing your business. These concepts sweep away the clutter and get you focused on what really matters to have a healthy and growing business. Stay to the end, where Jody discusses what it takes to create great culture in your business. Let’s dive in with Jody Grundon culture in your business.

00:51
Let’s dive in with Jody Grundon. Jody, I appreciate you joining us here today. I’m looking forward to digging into all things financial. You help firms really make sure that all of the data is buttoned up on the financial side and really understand what it takes to scale and grow a business, and so I’m looking forward to digging into that. I also want to highlight the fact that you started a virtual CFO firm before any of this was cool In 2002, it was 20 some years ago, well before the COVID, well before all this Zoom stuff was making virtual an easy thing to do, and so I think that’s pretty cool. I’m excited to get into that and sort of the culture you built there and how all of that worked. And then you took that firm, grew it nicely and sold it to Anders. Now we’ve got virtual CFO by Anders and just think that’s really cool and now you’re working on growing that business. So thank you for joining us here today.

01:43 – Jody Grunden (Guest)
Yeah, Patrick, I’m looking forward to it.

Very good. So I’d love to dive in. You’ve been working with digital marketing agencies, other businesses out there in the world, and you’ve sort of identified there’s some key financial metrics that will be necessary for the business to grow. Can you just walk us through what those four metrics are?

Yeah, sure. So really we’ve identified four metrics that we feel that every business basically should operate by, and it’s called profit-focused accounting. That’s the general part about it, and what it is is identifying the non-financial metrics that drive your business, and it all really ties into developing this really dynamic forecasting that every business should have. When I worked in public accounting, we did the forecasting a lot of times behind the scenes and then gave it to clients. When I worked in the corporate world, we provided that we did those ourselves, and the nice thing about it was in the corporate world was always dynamic, right, always changing. It wasn’t just simply a budget that moved forward, and so when I talk about these metrics, they all revolve around dynamic part of it. They’re ever changing. What happens today changes, what’s going to happen going forward, and that’s really the key to it. And so the first metric was the cash metrics, and when clients would ask us all the time, how much cash do I need in the bank, and a lot of CPAs would say, oh, spend all your money at the end of the year because you don’t want to pay tax on it and then you’ll start the next year fresh to me is a horrible idea With businesses they should have. We’ve identified about 10% of the annualized revenue in the bank. So if you’re a $3 million business, then you should have $300,000 sitting in that bank account. And it’s kind of funny and you think about it. It’s like, well, that’s a lot of money. And it’s like, well, not really, because as a $3 million firm, that’s really the money that you need to really go through your cycle from AR to AP. Your cashflow cycle itself is going to eat up a lot of that time and energy. Plus what it does, it starts removing risk from your business. And you think, well, what do you mean by risk? And it’s like, well, pandemic is the perfect example.

03:37
The folks that didn’t have any money in the bank, they struggled during the pandemic. Those that had money in the bank, there was opportunity, opportunity to delay decision-making opportunities. You know, hey, I don’t have to make a decision right now. I can delay that because I’ve got a little time to eat it up and make a really solid decision. Also, the folks that you know had opportunities of new hires. You know, folks came on the market that wasn’t on the market before. You know, hey, maybe a great business developer you’ve always been looking at is available. I might tell you as an accountant hey, it’s not a good time for you profit-wise, but you know you got some cash in the bank so you can take that risk if you want to. That’s kind of the cool part about having cash it’s that it really removes risk from your business. And so cash is the biggest thing.

04:16
10% of your annualized revenue in the bank that does not include an extra amount of revenue that you need to put in the bank, which is basically what? 40% of your bottom line. So if you’re forecasting that you’re going to have a $100,000 bottom line, well, you better set aside about $40,000 of that throughout the year, because guess who’s going to come to collect on that at the end of the year? Uncle Sam is right. Uncle Sam, yeah, that’s your biggest creditor for the most part. Uncle Sam, yeah, that’s your biggest creditor for the most part. And so with that, you want to set that aside on a regular, weekly, monthly basis so that it’s not this huge, big, painful decision at the end of the year. And so we say have a separate account for that, out of sight, out of mind, an interest bearing account, hopefully, in like maybe a internet banking account 4% interest, 5% interest, something you’re really making some interest in. That has some, but you want to keep that super liquid and build that over time. Make your estimated payments quarterly based on last year’s information, but always keep enough in there based on your forecast, that dynamic forecast we’re going to put together. You know that’s the key there. And so 10% of your annualized revenue plus an additional 40%.

05:21
And then I always get the question also as well what about this line of credit? You know how does that work and I tell people to get as big a line of credit as you can and you want that to be relatively where that 10% is at. So again, if you’re a $3 million company, get a line of credit. It’s about $300,000. You may not qualify for that, but get it as high as you can and I think that’s really key. And the key of the line of credit is never using it only in less of an emergency. So now I just told you you’ve got $300,000 in the bank as your safety net, plus an additional $300,000. That should get you through easily four to six months worth of you know really issues.

05:55
Because if you do the quick math, why do I say 10%? Well, that’s two months of revenue, or two months of expense, you know there, whereas 30% is going to be about six months of expense. So if you’re really risk adverse, then you’d want close to that 30%. Again, simple math for everybody. They can do it in their head versus going through a real complicated formula. That’s the first. One is the cash.

Yeah, there’s so many things I want to touch on here that I think this is brilliant. The number one reason businesses go out of business is they run out of cash, so it’s like the least sexy thing to talk about, but it’s probably the most important thing for your long-term survival. I think there’s this concept about being anti-fragile. Nassim Taleb wrote this book called Anti-Fragile, and the fragile business has no cash. They can. Any turbulence comes along, they’re done. A resilient business has, like you were talking about, cash on hand to survive whatever happens. And then you also brought up like hey, an anti-fragile business can take advantage of market opportunities. Things go sideways a new hire becomes available, a competitor struggling. You can show up and, if you’ve got the appropriate cash on hand, take advantage of those opportunities. And so we totally agree with that. We also like to forecast these things out. We put together what we call our cashflow calendar. We look forward the next 12 months and we go okay, we’re going to put all of the big expenses on there. We create a band. You know upper and lower limits. I love the 10% threshold.

07:21
Oftentimes we’re working with clients trying to figure out exactly what that should be If it threshold. Oftentimes, we’re working with clients trying to figure out exactly what that should be, if it’s number of payroll cycles or just we’re always playing with it. But too little cash is dangerous, like we just talked about, too much cash is actually inefficient. You know, we should get some of that to work. And sometimes we run across some clients that they’re they’re operations people. Just they will like park cash until the end of days in their bank account and like, okay, this is great, but we’ve got like way too much money here. We need to move some of this and deploy it to wealth building in some capacity. So I couldn’t agree more about everything you just said, and we also love the.

07:54
We have a hierarchy of liquidity as well. So it’s like cash in the bank first, and then we’ll look at brokerage account, then we’ve got lines of credit both personal, business, security, back lines of credit, you know that type of thing and then we’ll we move all the way down to like Roth, ira and 401k and it’s like they’re available. They’re terrible places to go get money, but like if everything’s goes sideways, like we’re going to pull out all the stops, right. So if the choice is pull the money out of this account or go broke. We have to just decide, like what a business we have to decide which one makes the most sense.

08:25
So I love the cash piece. I think that makes sense and I think it’s probably something we see. Business owners, especially entrepreneurs they tend to have more ideas than they have time and money to execute on all of them. You know they’re always ready to put dollars into the next thing and it’s like you know we’ve got to pull the reins back a little bit on that and maybe look at some other sources to fund these cool ideas.

Yeah, and with cash the idea is making it super simple so an entrepreneur can easily calculate in their head. That’s why we did the 10%. We could go through the cycle and so forth. But the other one was, you know you mentioned, hey, we need some money to invest, and so we say to have basically two payrolls in the bank at all times. So everybody knows what their payroll is, believe me, at that time of the week or month or whatever they’re like, they know what that dollar is.

09:07
So make that two months or two weeks or two payrolls there and that’s what that cash account should have in it. The rest should go, like you had mentioned, into some sort of interest bearing account, whether it’s a high interest savings account, whether it’s a CD, something that’s super liquid, that you can get to without having penalty. You don’t want to go buy stocks and bonds and stuff like that, never be able to get to it and it’d be brutal. But maybe a mutual fund, something that has some of that thing, and so yeah, so everything should be in cash cash reserve and then we call it tax reserve and that tax reserve again should have a high interest bearing account as well.

Absolutely Love it and I totally agree with you we hate paying tax. We drive that number as low as possible, but the IRS is probably one of our biggest expenses, when you factor in everything from property tax, payroll tax, income tax.

You know it’s really big as KPI, right, if the more you pay in tax really the better you’re doing. You know not silly, you know you still have to be better doing Absolutely.

Very good, all right, thank you. So cash is our first metric. What are we looking at next, after cash?

So the next one, what we call production metrics. And so production metrics really depend on what type of business that you have. So if you are a coffee shop, it’s going to be probably the number of people coming in the dollar amount of the coffee. You know how quickly you can make it. You, you know. So whatever is driving your revenue, and so every business owner really needs to know that. If we’re service-based, like majority of the entrepreneurs, are this what hours work, its utilization, average, bill rate, effective rate, and so those are some of the metrics that you would actually do. Now, to know these metrics by themselves is important, to understand them is important, but, more importantly, it is how you create your forecast, and we mentioned that dynamic forecast. Well, every dynamic forecast is based on items that you can control.

10:50
So a simple example would be like if you were a truck repair shop. Let’s say that you’re a semi truck repair shop. Somebody’s break down all the time. You go pick the semi up, you go repair the semi and then you give it back to the company that had brought it in the first place. And so if I’m talking to a client that has that, I’m not talking about dollars with the client, I’m talking about how many semis did you have come in this month, how many you’ve got on inventory yet that you’ve got to get fixed. And I’m creating this forecast based on that. So I know, hey, their average semi maybe cost them $80,000. Is what their revenue is per semi. They’re going to have five semis come in, so five times 80. That’s what their revenue should be for the month. Let’s say it’s this next month, and then we’re going to go month by month and figure out what that revenue should be based on historical information. In that case it may be seasonal, because maybe there are more wrecks in the winter than there are in the summer, that type of thing, and seasonal because maybe there are more wrecks in the winter than there are in the summer. You know that type of thing. And so we’re building that forecast based on the top line revenue, on whatever those metrics are. And so I say when we say profit-focused accounting, that’s identifying those non-financial metrics. Again, utilization, average bill rate is the typical one for the majority of people, a number of employees, but in this example I just gave you it was simply a truck repair shop, and so that’s.

12:03
The second metric is basically identifying your revenue drivers and then building out your monthly thing. Now, keep in mind that every month is not going to be the same, and a lot of people go get that wrong. They think you know what I’m going to do $2 million, so $2 million divided by 12, and they slot that exact dollar amount every month. That’s a huge mistake that you can make because, especially like, for instance, if you’re labor driven, like a service-based companies, you’re going to find that probably November, december are going to be lower months because your folks are on vacation, they’re on holidays, you know they’re not working that 40 hour week that you would normally work, maybe in the summer, which might be your bigger months, and so you want to make sure that you know that.

12:39
Because then, because when you’re comparing a November and you’re thinking you know my average, let’s say that my average is $100,000 and your November is only $50,000. You’re like, oh my gosh, the world’s coming to an end. In reality, you’d forecasted $40,000. So actually you’re doing better, and so that’s the positive and you don’t want the reverse to happen as well, and in August you should be doing 180 and you come in at 100, you think, oh, I’m right on par.

It’s like no, you missed the boat by 80,000.

Yeah, and so that’s why it’s important, on that second metric, production identify your revenue drivers and build your month to month forecast based on those revenue drivers. And then what you can do is you can compare every month to what those revenue drivers should be Number of trucks coming in average, order size of the truck, two main fluctuations there, and then the number of trucks. You’ve got the three different drivers there just for that repair company. That off top of head you can kind of put in there. And so that’s number two, identifying those production metrics.

Yeah, I love that, and that’s one thing. When I get an annual P&L or a year-to-date P&L, I’m like, okay, this is all right, but all of our clients give us access to their accounting software and I’m always going in and I want to see it month by month because it helps me also identify these weird outliers. Like, hey, what’s going on there? Why did we have $30,000 more in this line item? And I can sort of drill into that where, if it’s just the annual figure, I really can’t see anything there.

14:03
And then I love how you’re building that forecast based on like, okay, we look back and we know we’ve got the data for the last three Decembers. Let’s model it off of those months versus, like you said, the annual numbers divided by 12, just not accurate, cause you’re going to have there’s going to be things like big insurance payments and some of these other like irregular expenses that show up on a regular basis that need to go out. And yeah, it’s going to screw up your, all of your data. So that’s wonderful, very good. Okay, can we go back to the dynamic forecast a little bit, just to understand that piece a little bit, because I A static budget sort of bugs me because things change right.

14:43
Yeah, and so can you just help us define what a dynamic forecast looks like?

Yeah, so a dynamic forecast, what would that look like? So in November, december, whatever you’re creating your static budget for the year, right? And so you’re figuring out, hey, here’s what every month should be, and you can use your production metrics to do that. So every month you know exactly what your revenue is going to be. The metrics to do that and so every month you know exactly what your revenue is going to be. The financial metrics was the third one there, and that’s kind of like all the expense sides. So you’ve got all the expenses now, what they should be based on industry averages. You know what your net income should be based on industry averages, and that’s really determining hey, is this budget correct? And so once that day is done, once January 1 hits, that budget’s worthless in my opinion. But the world could have came to an end, you know, on January 1 and really screwed things up. So why would you ever go back and compare to the something that’s really doesn’t? You know, it was just simply a guess at the beginning of the year. And so that’s where the dynamic forecasting comes in, because what happens is, let’s say that you’re three months in. I’m going to look at three actual months in a row, kind of like what you’re saying there, patrick, and then I’m going to look at my forecast going forward, you know, from month four, all the way through, and how did that impact it now? So my goal might originally been $12 million in revenue, but because I had three really bad months, now the best I can do is 9 million right, because I just bombed it in those three, or my bottom line. If I’m looking at my bottom line, maybe it’s a million dollar bottom line. The best I can do is eight, or maybe vice versa. Those are three giant months and now I’m looking at 15 million. I’m looking at $2 million bottom line. All because everything changed. Now, the important part of that is that if you flip it over to the balance sheet, which a lot of people forget, how did that really impact things?

16:21
Okay, so in scenario one, I was borrowing my line of credit in November. I knew that ahead of time because I did my forecast and I knew that, hey, I’m going to be short on cash there. And then what happened was you know, I had three solid months. No, I’m not. No, I’m flush of cash. Everything looks great. Or maybe the idea was I wanted to pay my line of credit down or my debt down or whatever. I basically go by month by month and show me what that should be. So I know exactly what I’m planning.

16:46
Because a lot of people look at that revenue side. That’s all they get fixed on hey, revenue and net income, but really how does that impact your debt side and your asset side? That’s really the important part of the dynamic forecasting, because you can really change things. It’s really cool going into a client meeting in January. You’re looking at it and you’re building everything out and you’re like, wow, I’m going to have my debt paid down to that and could I accelerate that Absolutely. Here’s how you would do it If we’re hitting our numbers, if we’re hitting our numbers and we’re looking at every month and maybe you can make an extra payment here and here and here, or maybe you can put that into maybe a fourth account and then make that lump payment at the end, just in case something goes south at the end of the thing.

17:24
So it’s really kind of a nice conversation piece. Plus, if we know that they’re negative in January, let’s say in October, they may be like well, I’m not cool being negative. So what do I have to do now to impact those information. Maybe you have to sell more, maybe you have to bring in more trucks than what we talked about, and how am I going to do that? So the conversation shifts to things that they can take action with now to prevent something going down there. And that’s what dynamic forecasting is. You just compare your actuals to your forecast and then you make those adjustments accordingly.

Yeah, I love it, and not to overuse the word dynamic, but when we look at some of our entrepreneurs that are growing and have these dynamic businesses, we have no clue what’s coming up in the next six months. There might be an acquisition, there might be a real estate purchase because they need new office space. There’s all of these things that just sort of end up there and it’s like, okay, we can try to shove it into the old budget, but what good is that? Let’s just make sure this is a living, breathing document. Look at where we’re at today and adjust, moving forward.

Yeah, because you’re always looking 12 months out with a dynamic forecast. It’s not the calendar year. You’re looking at the calendar year for your tax situation, but you’re really looking like you had mentioned. It’s a dynamic, it’s always a 12 month look and and that’s what it should always be the calendar year is just there for tax purposes and that’s not for running a business.

Yeah, I love. It All right. So we’ve talked through cash, we’ve talked through production metrics. What’s next on the list?

Okay, so I handed on the financial metrics. So financial metrics is, once you’ve got the production metrics, which is primarily your revenue side, and then your cost of sales side, the people that go into the revenue. Now we’re looking at our administration side. We’re looking at marketing facility and admin and from there we’re looking and saying exactly, like you’d mentioned, what bills are going to hit when, what conferences are we going to send the team to, what big insurance payment is going to come through. Whatever those expenses are going to come, we outline them exactly how it should be. And so maybe there’s no expenses from January through March for one of your categories and there’s this giant expense in February. Make sure it’s there in February, not spread throughout the year, because again, that’s going to distort your situation completely. So you should know at the end of when you get your budget and your dynamic forecast put together, you should know what every single month will be in net income and you should know what it should be at the end of the year.

19:39
And then the important part of that is to find industry analysis and look and see. You know, hey, is this realistic? And the reason I say that is because I’ve had people that come up with this great vision and you look at the bottom line. It’s got this huge bottom line. And then you look at the industry and it’s like well, the industry only does 4%. You’re projecting 20% bottom line. How is that?

going to be possible, you know maybe they can’t.

So maybe we bring it down and maybe we don’t want to be the average, maybe we want to be a little bit more than the average, but we’ve got to be able to have something to compare it against, and that’s the important thing. Now. If you’ve done this, if you’ve been in business for three or four years, you’re pretty steady. Well, we can compare against not the industry necessarily you can compare against your history. Your historical number is pretty similar. You have this gigantic wish that you think you’re going to hit at the end of the year, and so that’s where you’ve got to kind of normalize your information. Plus, it’s important to understand the different categories. What really drives your revenue? Is your marketing driving your revenue? What drives it? How much should I have in there If I increase marketing by a few percentages by doing some other campaigns, is that going to increase my revenue or is it going to be the same?

20:41
So those are the types of analysis that you do inside your financial metrics, and so financial metrics are simply getting everything in the right bucket in the right month and then also comparing it to national averages, so you can kind of see exactly where you fall and see if maybe you’re off a little bit here and there.

20:58
A lot of times it’s surprising when you find out maybe your rent is just way too much, or maybe your rent is going to force you to drive higher volume of gross profit because it’s like a penny game. Right, you got a hundred pennies in a penny game. That’s the same thing you got with financial statements. So if you’re using 50% of that to get your production down, now that you got another 50 cents there, you got to figure out how to divide that. And if I want 20 cents in my bottom line now I’m down to 30 cents how do I break that into my different segments? And so that’s the big part about wrapping up. That dynamic forecast is, once you have that production metrics, your financial metrics are wrapping it into the overall model.

Yeah, that’s great. So to sort of nerd out a little bit on the we’ll call it the CFO or controller side of things, like oftentimes we’ll see that our clients are having a hard time segregating out like their we’ll call it their cost of goods sold the COGS right From their, their OPEX, because some people might overlap, or they just have it all like lumped together under they don’t have, they don’t have any distinction. It’s just all payroll right and it’s like well, who’s generating revenue and who’s doing HR function? You know this, this side and it seems like that sort of fits into some of this discussion here Like do you see that regularly? Do you see people with sort of messy financials and they’re like I can’t really tell you know what’s administrative and what’s actually generating revenue. It’s sort of lumped in there, cause I think what people want is they want to look at their financials and know those answers, but they don’t know how to get their financials in order to be able to see that data clearly.

That’s exactly right, and I’d say, the smaller the company is, a lot of times they’re lumping them all down below. So you see one revenue line. If they’re service-based, that’s really all that’s up there. And then you see your OPEX, which includes everything. The important part of that is separating it completely out. If it’s a production person, it needs to be above the line there. So it’s revenue minus production people equals your gross profit, and then you take that and you subtract out your admin people and your marketing people.

22:54
So those are in different buckets as well, and so a lot of times it’s the owner, that’s maybe all three of those, right, and so you can’t really separate the owner in three buckets. But what you can do is you can do some behind-the-scenes math and figure out what that should be. Is an owner, 30% production, 30% operating and 30% marketing? You know, whatever that might be, you can kind of back it and separate it out. So when you’re comparing yourself to another company and you see, oh, this one company’s got 40% marketing and you’ve got nothing, well, it’s probably because your owner does majority of the marketing and they’re in the marketing and sales area in there, and so you have to make sure that when you’re comparing against another company, you’re breaking that out mentally. But yeah, I’d say 50% of the companies we see haven’t broken out already. They’re already up there. The other 50% is just one line item and we have to do the breaking out and get the books to look like it so you can compare against other companies.

Yeah, I love it. Thank you, because I think that’s an important distinction and we see it missed quite often. We don’t know what it actually costs to produce the widget and it’s like, well, we need to sort that out, great. So you talked about industry averages as well. I’m sure, if I’m working with Summit, you guys are helping us because you know you’re so broad that you’ve got a lot of this data sort of in-house. But where would anybody go to go? I’m a coffee shop. How much of my net income should fall to the? How much of my revenue should fall to the bottom line? Where do those numbers come up?

So Google is a great way of doing it, but we use a product called Profit Sense. We’ve been using it the way we were one of the original companies on it, and it gives you that information. So it gives you the information. It’s live information, so it tells you hey, here’s what the last 12 months, here’s how many people, how many companies, submitted their information there. So you can kind of see it, I’ve got 80 companies. That’s good to rely on. If I only have two, I probably can’t rely on the data, so it does it by SIC code. It’s really nice. It is a paid service, though, so it is something that is paid, highly recommend, and there’s a lot of others like that out there in the market right now, but that’s the one we primarily use, and then if we don’t know, like I said, we Google it and just keep Googling until we find out what we want.

Yeah, I love it Very good, All right. So we’ve talked through. We’ve got cash metrics, we’ve got production metrics and financial metrics. What’s our fourth?

Yeah. So the fourth one of profit focus counting would be your pipeline metrics. And so pipeline metrics people a lot of times overlook these metrics. These are probably one of the more important ones, because what you’re doing is you’re a lot of times overlook these metrics. These are probably one of the more important ones because what you’re doing is you’re right-sizing that dynamic forecast that you put together and because, like, for instance, if we put a dynamic forecast together and we said, you know what, we’re going to have $100,000 in revenue next month, and I’m just kind of hoping that’s going to happen, well, that’s probably a huge mistake, right? And so the pipeline comes into play and you have to basically calculate hey, what do I have under contract? Is it 40% already under contract and I need to make up 60%? And where’s that 60% going to come from? And here’s the bucket that’s going to come from. And so that’s where the pipeline metrics.

25:49
It’s a really long form. I’m not going to bore you to death with it, but what you do is you go in like a salesperson, you figure out, hey, what percentage should it be? And so, if I know, I’ve got to make up a 60% gap this month. Before I only had to make up a 20% gap. Well, I probably know I got to reduce my revenue. And so the idea of a pipeline is once you’ve actually determined how much you’ve got in your pipeline.

26:10
Getting back to the trucks if I normally have, if I need four trucks and I only see I’ve got three, well I probably need to reduce my revenue by one truck. If I’ve got five, maybe I need to increase my revenue by one truck. And so what that’s going to do is I’m going to go into the next three months and make that adjustment. So I only look three months out. I never look beyond that because again a forecast gets really fuzzy after three months. But I’m always looking at that three months where I’m saying you know, hey, what do I need to adjust? I was planning on hitting a hundred thousand next month. It looks like I’m going to do it, not going to make an adjustment there. The following month it looks like I’m right at about 80%. I’ll make that up, cause I always make up 20%. No adjustment needed there.

26:47
The third month well, it’s a 60% or maybe it’s 20%, and at that point I only make up 60% when I’m short. So I’ll reduce that third month down. And why do I do that? It’s because I don’t want to give my false sense of security that I’m going to do better or worse than what I’m truly going to do, because I’m making all these really strategic decisions based on that forecast, and so I want that forecast to be as accurate as possible, and that’s why the pipeline metric is super important to do on a regular basis, every single month. So you’re making adjustments to your dynamic forecast. Now that doesn’t mean that you’re not going to exceed or fall short. That just means that you’re trying to predict what’s going to happen, and the best prediction is knowing what that pipeline has under contract as well as what’s out there to be serviced.

Yet this is fantastic.

27:33
The lifeblood of every business is revenue, and that revenue comes from a pipeline of potential paying clients, and so it’s like knowing where those things are and we can actually even If businesses really look closely at this, they can get really good at this and they can find those leading indicators like, hey, we know, if we go to three conferences and make the right connections, the pipeline’s full.

27:55
If we make this many sales calls, the pipeline’s full. It’s like okay, cool, now we can work our way backwards and figure out what are those key levers that we can pull on the front end, just from an activity perspective that we know we’re going to close. Pick a number 30% of every prospect that comes in the mix. We just got to get that many prospects going and we can almost have a very good idea of what our pipeline is going to look like. But I think so many people are operating blind or they’re reactive in the context of, like crap, we don’t have enough revenue coming in, they go do a bunch of things, and that’s no fun for the operating team either, cause they’re like geez.

Or they’re just guessing, they’re just hoping, they’re just waiting for it to come in and it’s not showing up and they’re wondering why. Yeah, it’s better to be proactive than reactive, and especially with your pipeline.

Yeah, I love it, fantastic. So, just to recap, we’ve got our cash metrics, our production metrics, our financial metrics and our pipeline metrics. That’s. It Sounds like a winning combination to me, so wonderful. So I thought we could talk a little bit about. I’m very interested in the fact that you’ve built a virtual company. I’m going to share a little bit of my experience and then I’d love to hear yours. So our team is virtual. We’ve been virtual for the last 5 years and it’s worked out well, and what it’s allowed us to do is get hyper-focused on the niche we want to be in, because we can go find the talent that’s really good at this, we can go find the client that wants this service that we provide, and it works out nicely. So can you tell us a little bit about how you decided to get started with a distributed workforce in 2002 and just how that evolved over time, because I imagine it was a little bit of an adventure.

Yeah. So it was super exciting really when we um, when we did it, we and this wasn’t back in. So 2002 is when we started. 2013 is actually when we went fully remote and so huge difference 2000 and about 11, 2010 is when we had our first client. That was fully remote and you know, with that client it was kind of amazing because it was our true virtual CFO client where we couldn’t actually go to their place of business.

30:04
From 2002 to 2009, we were going to everybody’s business or they were coming to the office. It was an office type location and with that it was really tough to grow. It. Growing was, and especially when you had this new product called Virtual CFO Services which nobody heard of. Is it real? What does it mean? You had to explain it to everybody. Everybody’s real hesitant. I got to have somebody next door to ask questions. All the objections came up completely and it was really difficult to find clients and we were picking up maybe three to four clients a year through the first process and we’re like, oh man, this is really failing completely because it’s not what we had envisioned. And with that it wasn’t until we picked that first fully remote company up that we thought, wow, this is cool. Now they’re in Rhode Island, like you had mentioned. I can do exactly. I’m in Indiana, they’re in Rhode Island. This is kind of cool. How are we going to do this? I can’t go there. So we had to figure out exactly how to make this work, and back then video sucked.

30:59
It was brutal, it was horrible.

And so a lot of it was Skype. How did it, was it? Oh it was, or did you just do phone?

calls. It was. It was phone calls.

31:07
We went to phone calls because we tried it but the mouth was different than the voice, it was just really distracting. And so it was phone, phone calls and and we got really creative on how to really go over financial to somebody on a phone, super difficult and uh, you know. But we got good at it. And then, once the video started picking up, then it was like, well, this is a lot easier. And with that we kind of found our first niche client. Because that first niche client was a marketing agency out of Rhode Island and it’s like, well, we’re hitting it off. They’re like hey, and they started referring other marketing agencies to us. Soon we had like about 10 of these companies were like this is great. And then we really started focusing our marketing towards those companies to really develop that niche. And so we we still did other companies, but our marketing money was going towards those agencies, which is really important. If you’re a decided niche, don’t just like throw everything up and hope, like hope your people come. You know, cause that we had a business pretty quickly. So you know, because that got me out of business pretty quickly. So you know, that was the big thing there.

32:01
And then once we learned from this, because this company was one of the first 25 companies in the world to go remote. So they were very young and they had 65 folks on their team and they were spread out not only in the United States, but they were in Canada, they were in the United Kingdom, they were all over the place. And with that, it was pretty cool because we were learning from them and how they did it, because they had such a strong culture and we’re like well, how can we replicate that culture? And with that, when we decided in 2013 to go remote, I got a lot of pushback because accountants hate change. None of my team wanted to do it. My partner didn’t even want to do it. He was completely like no, I can’t do it. I got kids, all this kind of stuff. And what I did is I kind of like thought this was going to be a dream, because I I introduced it into a meeting and and I always start the meetings- out with a joke and they thought that was the joke that it wasn’t.

32:47
But you know what? What do I do? And so I thought, well, I’m going to, I’m going to building out and make it really conducive. I’m not going to lose my 18 people at the time. That’s what I had at the time and so I thought, well, I’ll build it for 30 people. It’ll be a long time before we ever need to build another building out. It took about six weeks to get everything done. Construction was a little bit longer, and then that six week period I had to kick everybody out of the office. They tore all the walls down, everything.

33:11
And it’s kind of amazing how quickly everybody figured out how to work remote. Kind of the same thing as the pandemic. You know you can’t do it until you have to do it, and then it’s like, well, they figure that out. And so we were figuring out how to remote. Now the benefit we had that a lot of the folks in the pandemic didn’t have is that we could copy what one of our clients was already doing. We already knew the software they’re using. We had basically designed it and mimicked what they were doing to kind of really get that going.

33:35
And then, after the buildings were done, I never even got my name on the board. Summit never appeared anywhere because the entire team, one by one, came to me. My partner said hey, I love this remote thing, let’s do it. And so then I said you know, fine, I’m going to keep the building for another year to make sure that it works, kind of a safety blanket. I’m going to hire only remote from here on out. And that’s what we did. We hired remotely going forward and it was one of the best $100,000 I ever spent in a building that no one ever inhabited. Kind of the funny story about it was I got a tenant for it and they remodeled it again. So some of those offices never had a desk and with us it was really worth it.

34:11
And so you ask the question well, how do you keep culture and stuff like that? Well, it has to be super intentional. And what we found from the very beginning what a lot of folks did wrong in the pandemic is that the personal touch is still super important. And what I mean by that is that with our remote team, our remote team gets together every six months and so we go to Las Vegas. For, you know, I bring my 75 people to Las Vegas, they’re in Las Vegas and we go through, we go to some workshopping maybe the hottest thing going on internally. Majority of it’s just soft skills and we’re teaching them how to handle difficult questions, how to work with people, all the things. We’ll bring in different people to come in and talk to our team about that, bring in different professionals and so forth, but the idea is that we’re bonding in the workshops there, but the more so.

34:58
The idea is, hey, we’re getting to know each other and they always say you have friends in business to stay in business or to stay there. And that’s what we’re doing is developing those relationships. And so we purposely start at 10 o’clock. You know that gives them they can hang out all night long if they want to, and they just need to show up 10 o’clock and we cut it at five. We have a happy hour right afterwards where they can mix and mingle with each other.

35:21
We go for dinners and we actually have dinners that we. We randomize people up and so we make sure that you and I are hanging out all the time Patrick, I’ll probably never have dinner with you because we hang out all the time anyways and so I’m going to force you to meet other people and develop those bonds. And it’s amazing because I always tell people that a remote team is only as big as the people they work with, and so if I’m only working with four people, I could be a hundred person team, but really I’m a four person team, and so that the idea is, how can I get that bigger? And and these retreats help that happen, make that happen, because now they’re going to dinner with eight other people that they’ve never met, they don’t work with, and they’re getting to know those people and it’s going to force them. Then they’re hanging out with them afterwards and man, it’s amazing how quickly people start bonding.

36:01
And it’s kind of funny because you know, I’ve been to company picnics and company parties and that sort of thing and a lot of times people are just there to go through the motions and they can’t wait until that time as they can just book out. These retreats are not that way. They don’t want, they don’t want to separate, they want to hang out with each other all day long. A lot of times it goes until nine, 10, 11. No, it goes like a one o’clock in the morning A lot of times, cause they’re hanging out at the bar chatting about everything, getting to know everybody on a personal level, and so when they come back and work in this remote environment again now you know, instead of the four people I’ve got Bob and Susan that we have no reason ever to talk to, I can hop on and ask them a question, or maybe things aren’t going well with for whatever reason. I could pick their brain on, hey, how to do it, because I’ve developed that bonding. That’s where it comes into play.

36:46
And so we spend a lot of money on remote work, on these conferences. We spend about $3,000 ahead to go to these conferences, but again, we don’t have a brick and mortar place, like yourself, and that allows us to. You know, when you, when you do the math, it comes out to about the same cost as a brick and mortar cost, but it’s used to really keep that bonding going together, and so we do that. And then we additionally have quarterly conferences that we meet as a leadership team. So in addition to those two, we have a leadership team. We do the same thing, we go over the different rocks and goals that we have and we meet on a quarterly basis for that. So a lot of it’s in person. You think. Well, it’s fully remote. You’re never in person. Well, you are in person because you do need that. In my opinion, you need that bonding there. That’s so crucial to keep retention there and that’s why our retention is so high. We have, and so we have a really high retention rate compared to a typical accounting firm.

You hit on some really important things. I think the interpersonal piece, like getting people together, because we found, because we do the same thing, we meet twice a year, get together and just sort of build those friendships Because it’s so hard, like we’ll be in a meeting and we’ll have a little chit chat, but it’s usually leave the meeting and I’m off to the next thing and I don’t, I don’t really get to spend time with my peers and I really don’t feel like hopping on another zoom to hang out with my peers. You know, like it’s just it’s not a great way to build culture, so that’s great. And then we’re the same way, like I’m the only one here in this building. You know we’ve got 15,000 square feet here and I just have a lease out to a bunch of other people.

38:15
So it’s like it was, you know, bought it perfect place for financial advisory 15 years ago. And then it was like well, this is not the direction we’re moving. And like I like working remote. We my wife and I like to travel. We were traveling a couple of weeks ago and a client reached out and was like hey, can you present to our mastermind group? I’m like absolutely, it didn’t matter where I was. I could fire up the computer and we were off and going.

Yeah, that’s exactly right. With remote work, I would say also, autonomy is really crucial too. That’s what people are looking for, especially in the marketplace. Is that, if you look at the different things that flexibility and the autonomy place? Is that, if you look at the different things, that flexibility and the autonomy and with how we figured that out, is that a lot of times when you start a new job, you get this package, you get your computer and all that kind of stuff.

39:00
Well, we give our people that. Not only that, we give them a stipend every month where it gets put into a tech we call it technology stipend, so and it builds over. I think it’s like 200 bucks a month that gets added to this and it builds over time and really doesn’t cap. And so what that allows them to do is that, hey, if they need a chair, you know, instead of calling hey, can you send me a chair, they just pop up their you know their card, they buy it themselves through Amazon. It shows up, they have complete control over that. You know you need new headsets and you know great, don’t even ask. Just you know here’s your stipend, you go, you go buy it.

39:32
And that made it really nice and convenient and, again, people just love that autonomy. We do the same thing with an education stipend where you know if they want to go anywhere for any kind of educational purposes. We have another I think it’s 200 a month that’s put onto that where they can. Maybe three or four of them want to go to this conference in san francisco. Instead of getting approval for it, you have this, you have the availability in your education so I can do it, yeah, and then they’ve got they can use part of that for their hotel and part of that for the transportation.

39:58
It makes it really nice and so, again, it gives that autonomy which I think people just love to have. So you get the autonomy in the way that you work. You know your work is work from anywhere and, like you mentioned, you don’t have to be at home. You can work from anywhere. I’ve had many meetings at ballparks and inside of ice rinks. My kids played hockey. They’re amazing how how that worked out. But you can do that anywhere you want by having the autonomy to do that but also having the autonomy to spend it, which was which was important Absolutely and I love all that.

Like we, we definitely have a stipend on the continuing ed side. I like what happens if you don’t train and develop your people. Like there’s the old saying like uh, what if you train and develop them and they leave? And the other side of it’s like what if you don’t and they stay.

40:41
Yeah, so and our retention is also really high. We haven’t had any of our virtual team leave. And it’s like I’m also want to build your work environment to be as comfortable as possible. So, like I have a standing desk. If you want a standing desk, everybody has standing desk, you know, if you want multiple monitors, like great, we’ll get you hooked up. And, uh, I would rather you be comfortable and productive versus uncomfortable and unproductive. So that’s wonderful.

41:06
And I think another thing too that we found is we hire results oriented people Like I’m not going to micromanage you, I can’t micromanage you. I’m going to give you an outcome, I’m going to give you a track to run on on how to get that outcome, and then I don’t care how you get it done. You know now I have no interest in like burning people out. You know working crazy amount of hours. But it’s like if you want to work, you know, and we’re spread across all the time zones too, so we’ve got East Coast to Pacific time, and it’s like if you would like getting up at 5 am, get your work done, so when your kids are home from school you’re done Like fantastic, totally fine with me, I’m all for that. So we just have, obviously, clients that need you to show up to meetings, but other than that, you can get your work done regardless of what the schedule looks like.

So yeah, exact same thing. Yeah, and the idea is really not to burn people out. It’s to give them the flexibility to manage their schedule. And we like to tell people like if you got to pick your kids up at three, that’s cool, come back at four and you know you can work as late as you want. If you need to take a break because you’ve got a PTA thing, you know you can work at night and get it done. We don’t care. You know it doesn’t make any difference. We’re deadline driven and, just like you had mentioned, if I’ve got a meeting with a client on Thursday, I need to have that product by Tuesday to review it. You better have that product to me by Tuesday, you know and it’s every good quality.

42:31
You know, I don’t. You know. I don need to have things done timely. I love it.

Well, Jody, you’ve literally written the book on building the virtual CFO firm in the cloud, so I do appreciate all of your insight and wisdom on all these things. So can you walk us through like hey, somebody wants to work with Summit for CFO services. What is the best way to get plugged in to you and your team?

Yeah, I’d probably do some research. First, Hop on YouTube. We throw a lot of free information out there on how we do things, what we do. Make sure that you feel it’s a comfortable fit coming in and then, if you do feel free, to hop on our website, wwwsummitcpanet. We did net because we couldn’t afford com, just so you know. So net, If you still feel comfortable, fill out a form and then we can talk, or just simply drop me an email my email address is jody J-O-D-Y at summitcpanet, and be happy to respond, set up a call and we could go from there. I also wrote a book called Digital Dollars and Cents which kind of talks about exactly what we talked about. Feel free to read that and see if you can do it on your own.

You know a lot of folks do that and they can do it on their own. That’s great. If you can’t be happy to help you out, yeah, and we’re big believers in finding who’s in our lives, not additional house, especially entrepreneurs Like I’m certainly capable of figuring out how to do it, I just don’t have the time or energy to do it. So it’s like if you really want your business to grow and scale, please stop doing your bookkeeping almost immediately, find somebody that’s capable of handling that and hand it off. So, jody, we’ve talked a little bit about you know you’ve worked with a number of digital marketing agencies. Who’s an ideal client for you?

Yeah, for us ideal clients typically one that has it’s either a fast growing startup where they’re highly capitalized, or it’s somebody that’s met that one half to $2 million mark on the minimum side, and I would say our biggest clients as high as a hundred million dollars. We don’t have many of those and usually those clients are five and $10 million when they start with us. We’ve grown it to that. But I would say our average clients between five to 7 million and something like that, mostly service-based companies of some sort, franchises, that sort of thing.

Wonderful. All right, this has been great, Jody. Anything else we need to add to this discussion about financial management?

virtual culture, any other nuggets before we wrap up, I’d say the biggest thing is that my father is the type of person that actually my father-in-law is the type of person that had this McDonald’s on the corner that he was talking about for the longest time. He’d talk about how he’s putting McDonald’s up there, how he was going to do all this, and what happened was the McDonald’s finally went up. But guess what? It wasn’t him that put it up. And we have a lot of people that go through our course because we teach other CPA firms how to provide CFO services. We have a lot of people that go through the course and they think, wow, this is great. They learn all this great information. They’re on every phone call they’re going through and asking tons of questions. Then they never pull the trigger.

45:19
I would say pulling the trigger is the biggest part of it. You’ve got to pull the trigger and that’s going to get you places. We never would have went virtual had we not pulled that trigger to do it. And that’s what we have to do. Pulled that trigger to do it and that’s where and that’s what we have to do is is you’ve got these great ideas, you know, go out and do it. And if, if you need extra time to do it and you need to offshore the bookkeeping or whatever, you know, that’s when you hire somebody like us or Patrick on the finance side to do the, to actually do that job, and that’s the. The important thing is just you know, be ready to actually do it.

Yeah, I love that. I had a mentor once tell me that our business would grow at the rate at which we made decisions, and it’s like it’s absolutely right. You’re going to screw most of them up. You’re going to make another decision and it’s going to get better. And it’s this constant evolution. You’re making fine tuning adjustments versus waiting for everything to be perfect. And, uh, I appreciate you saying that because we see, and I’ve seen you know, in my entrepreneurial career, I’ll go to conferences and seminars and I’ll meet the same people and they’re just about to get started. And then I’ll come back next year and they’re still just about to get started and it’s like they’re entertained by the idea of being an entrepreneur. They’re entertained by paying tens of thousands of dollars to show up at these conferences but not actually do anything. They think it’s, the idea is really cute, but that’s the distinction is like can you go out there, take action? And it’s, it’s hard. Being an entrepreneur is hard, but just fail yourself forward. So I love it. Wonderful, that was great. Thank you so much, jody. I appreciate your time and energy.

46:49
We will have all of your contact information and links to resources in the show notes, so if anybody wants to check those out. They’ll be able to find them there. Thanks a lot. Thank you for listening to the Vital Strategies podcast.

47:05
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47:37
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