In this episode, Michelle Lesifko joins Jamie Nau and Summit CPA CEO Jody Grunden to share what a virtual CPA firm does and how it differs from traditional accounting firms. You’ll also get insights into how Summit CPA uses forecasting and cash flow to help businesses meet their goals and when founders should consider getting help.
“Many times, it’s the last thing they want to deal with, but they know things could go so much further if they had the proper staff. The back of the napkin doesn’t work anymore.” - Michelle Lesifko
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Jamie Nau: Welcome to Episode 3. Today's topic is going to be a good one. A lot of CPA firms out there today are advertising about virtual CFO services. So today we're going to talk about what virtual CFO services means to Summit and how it can help digital agencies. Today we have Jody Grunden, the CEO and owner of Summit CPA and Michelle Lesifko one of our all-star CFOs to talk about this topic. So Jody why don't you start us off and talk about how Summit started using that term in 2004ish.
Jody Grunden: We were looking to actually market the product or market service and we didn't want to do it in the newspaper or in the or the phone book or you know the typical things at that time. And so we were looking to use the computer and use Google and try to market it through the Web. And in doing so we tried to look at different things like, outsourced CFO, to see if maybe that would rank in the top on the front page. And it would. We were page 50 and so forth. We knew we couldn't actually manage it if it were that far back. So we looked for something that was a term that was not being used at the time that we could rank on the front page, and so we went through the dictionary, thesaurus, you know, everything trying to figure out what would work, and we said, virtual. How about, Virtual CFO? Would that work? And my partner, Adam who's like, I don't know it sounds like it's not real. I'm like, well it's going to, I will actually be on the front page if we do it, and we were like let's give it a try. And so we started coining the term, Virtual CFO, back in 2004 on the web, and we were front page you know right away we're the number one ranking in Google which was great because, it was like, wow that was kind of easy. We picked the term and now we're number one. But that also means that no one else was looking for it. Which was the opposite side of it. And so we had to think, well how can we actually market this and go forward with it? So we continue using virtual all the way through virtual CFO, and then it was like seven eight years later, we actually had our first client from the website. Somebody that we couldn't actually physically meet and go see. And so you know from there it kind of blossomed. The term kind of kicked on. Everybody was starting to using it, gained more and more traction. And so it’s kind of cool, really any kind of CPA firm you'll look at today, will have that listed as a service that they offer. And the cool thing is we've been offering it since 2004. So it’s pretty cool overall.
Jamie Nau: So you said, outsource CFO. You said, virtual CFO. Are there any other terms that companies use that you guys are familiar with that kind of fall into the same category?
Jody Grunden: Part time CFO and you've got fractional CFO. Many different variations of that term. The one that's prominent though I think is the virtual CFO.
Jamie Nau: Yeah. Because you talked about fractional CFO a lot of time, that's a part time coming into the fixed problems right. Our virtual CFO services, we're not we're not part time. Correct, Michelle?
Michelle Lesifko: Correct. We are definitely not part time. We're integrated with the team.
Jody Grunden: So kind of adding to that. Jamie, what you're talking about I think is, you're saying, hey come in and solve a problem. So you hire that person for you know a project. So they may bill you five, six, and eight hours on that project to get it done, and then afterwards they're gone. They may leave a nice little binder explaining what they did, and how they did it, which is cool because that's what they're hired to do. But what Michelle is saying is that we're actually part of the team right. So we actually are meeting with those individuals weekly, couple of times a week, at least the bare minimum on a monthly basis to go over everything that a typical CFO would do. And the idea is not to be one-and-done, that is not going to be long term. So we want to be there year after year. And ideally as the company grows we want to grow with the company. And so you know we may start off with a million dollar company that may grow to a 10 million dollar company, which is pretty cool , we'll just add more resources onto it behind the scenes to make sure that we can handle that type of thing. So growth is real easy. You know when it comes to the duration how long we're actually with the client.
Jamie Nau: Great. So Michelle, if I'm a digital agency and I just hired Summit as a CFO firm. what can I expect from you? What's the difference really between a CFO firm, and the traditional accounting/bookkeeping that I have been receiving?
Michelle Lesifko: Yeah I think the big piece, and like I said it starts with, we're part of the actual company. I consider myself as well as all the other CFO that we are part of the management team. So as part of it I, I think that the name of virtually CFO, I think a lot of times kind of gets the majority of those that are out there are more of that accounting bookkeeping factor, whereas Summit sets us apart whereas we come with an entire firm. So we are there to, yes, aid in the accounting and the bookkeeping if necessary but really we're forward looking.
We're really wanting to help build the company to where it wants to go and being partnered with them in the different disciplines whether it's just status quo, making sure we get enough cash in the bank to kind of keep things going, or it's a matter of, hey there may be a possible acquisition or a merger or you know, an investment or a downsize. You know those are some aspects, and we are integral parts to that entire conversation, and we have a part in helping build that whole progression. Whatever it may be. So that's where I think it really does come into the play. Yes we are part of the team we're not just kind of a coming in seeing what we can do to fix it and be done. It's we're always kind of forward thinking as well.
Jamie Nau: Great. So what does it look like on a week to week basis, or day to day basis, if I do hire somebody as a virtual CFO firm?
Michelle Lesifko: At least once a week we are meeting, and sometimes it varies depending on the client. But many times there's already an existing management meeting that's already there, a leadership style meeting that the majority of the management is there. We become part of that meeting as well. So the CFO would be a part of that. And you know whether they're active in it or just listening to you, because sometimes even just not hearing or not participating within those meetings we really pick up so much. So we're part of those but then as well as we'll be partaking into the forecast part. The financial statement of course the financial statement meetings, a pipeline meeting/kind of a revenue rack, depending on the service that's there, and then just kind of an ad hoc meeting. So there's usually, we have a specific cadence each month that we go through, each week has a different agenda, but we kind of follow that path. And so you have at least once a week of those type of meetings and then if we are doing cash flow sometimes those are incorporated within the meeting where we have an off meeting that the accountant would be available as well to be doing the cash flow meeting. We don't want to necessarily push that to the side but we want to make sure we have enough time for each one. But I feel to, yes we have a normal weekly cadence of discussing but that doesn't mean you can't talk to me until the next week. Of course there's always you know yes for a remote you know that's where the direct messaging whether it's slack or whatever ways that they're communicating or even just random phone calls just to kind of get on those things of, you know you're not necessarily having to wait to have those discussions until the next meeting. So that is kind of the high level.
Jamie Nau: Great. Another way I always describe it to our CFOs and to potential clients and existing clients is you know, a lot of our listeners have worked for agencies and worked in smaller agencies, but I spent a lot of my time working with corporations in large corporations and I hardly ever saw a CEO walking down the hall without the CFO. Right next to him. That's the role of the CFO, it’s to be there because oftentimes the CEO has this great idea and they want to bounce it off of someone and the CFO is the perfect person because they can say, well I have this great idea and the CFO can run some numbers and really help you answer those type of questions as well. And say, well this is what that idea could do. This is the other side of it, it could also lose you money as well. So that's really, that's a partner in crime is kind of how I look at it a lot of ways.
Michelle Lesifko: Yes, and I think sometimes too, along with a partner in crime, a devil's advocate, because sometimes, especially digital agencies, they're very creative you know they wear their hearts on their sleeves and they're ready to go and they're ready to do things and they get excited. And we're kind of that, OK let's step back and look at the big picture and see how it is. And yes, it may be a great avenue, but let's just make sure the risk is covered as well as understood.
Jamie Nau: So Jody back to you here. So if I'm a digital agency what's the difference between hiring Summit CPA and hiring a full time CFO? Why wouldn't I just take that route if the CFO was so important?
Jody Grunden: That depends upon the client and the clients need for the most part. With Summit the biggest thing that you get as with a fractional CFO or virtual CFO is that you're going to get a team of individuals that can actually help you out, whereas a CFO all by themselves is kind of limited to the resources they have internally. Whereas when you outsource a firm like a summit you're going to get not only one individual that's actually overseeing the account, but you're also going to get the availability to access other individuals within that. For instance, Michelle may be great at profit sharing but maybe not great in mergers and acquisitions. So she can actually tap into one of many other CFOs for help if that that topic ever comes up. So it's kind of it gives the ability to leverage other resources within the firm and a lot of times you know people say, yeah we come to you because we've got great industry knowledge. Even with a brand new CFO it's real easy to get that industry knowledge because they can leverage everybody else on the team. So just because you know somebody who's new to the firm, or they have been with the firm for a long time, you know that knowledge is there where they can actually pop up the dictionary, or pop up encyclopedia, and get that information from other sources within the firm.
Michelle Lesifko: Yeah I couldn't agree more with that aspect and I think that's what sets us apart. And that's one thing that I love to share with my clients is that yes, you are hiring Summit but when you're hiring Summit, you're not just hiring the team that is assigned to you per say myself as well as my accounts. Yes we have a good knowledge and breath. But if a question comes across that I may not have a full understanding, or may have just recently heard in one of our internal meetings that someone else is experiencing I could tap into that. And then the other huge thing is we do have a full tax department as well. So whether you're hiring our services for tax along with the CFO, even just questions. I kind of have a half and half, or some of my clients do have tax, some don't. But with that like to know that I have an additional resource or can just pop in and have a conversation because those tax laws are always changing and we are always looking. It means a lot to know Michelle is my CFO. But no I have Michelle plus all of Summit that's behind us. So it's a huge factor
Jamie Nau: And we're very intentional about making sure our team meets. Even though we're virtual I mean we have two or three meetings a week we just talk shop and I think a lot of those conversations know when we first started and we were a little worried we're like, we're just going to have an open forum, how long is this meeting going to last? May less overtime a lot of times just because we're too busy talking about something that one client's doing that the client is thinking about doing. So to Jody’s point someone who's new to our firm and just started two weeks ago is going to get jump in right away because of those meetings and because of the tools that we created for people to be able to research different issues and so it's definitely the industry knowledge does help a lot.
Jamie Nau: So Michelle you mentioned forecasting earlier and I think that that's a big key for a lot of listeners here. So when we do the forecasting process can you go into that a little bit? that really is the key to a forward looking so you can go through that forecasting process.
Michelle Lesifko: Absolutely. I like to always kind of share that yes it's great to know how you did but you can't really change much of that. So really it's, OK how have you done and now what are we looking to achieve going forward and with our forecasting? We definitely like right now we're key into looking into 2020 and that's really important. However we're assessing how we're doing along the way every single month. So our forecasting we're taking the actual results of what's happened throughout the year. So right now I'm looking at you know September from year to date September and seeing how we're going to finish out the rest of this year and then as well as 2020 because so many things can change within a month that that could have a huge trajectory difference on how you're going to finish out the year.
And so based on those decisions we're going to want to say, OK do we need to adjust? Can we accelerate something, you know, how can we make sure we're looking at it and then not only are we looking at the full picture, but especially we're really focusing on that pipeline as well to make sure that those numbers are going to be reached and especially in digital agencies. We really can't look much further out than about a couple months. But those two months are crucial. So we want to make sure we have what's in the pipeline is there that we can meet it.
If not are there adjustments that we need to make. And then it's not just the income statement but then if we do see a little bit of a downturn let's look at the balance sheet as well. I think that's another big factor too that I love that we are looking at the impact of what the income statement is doing direct correlation to the balance sheet and we have the tools in place to be able to kind of build that out and see the effect that does have whether it's one month, two months, six months down the road what are we looking at. And that's such an important factor that I know is key to make some of those significant decisions that may have to happen.
Jody Grunden: Yeah and when Michelle's talking about the balance sheet she's talking about cash and lines of credit and debt and so forth. So what she's doing is she's taking the financials we're making informed decisions, we're making changes right away based on what she's talking about. you know different things like life examples that hit. and we just say. hey based on what happened this or projecting to happen you know not only appears with the net income is going to be at the end of the year or if a tax on that type of thing. But here's what the cash is going to look like. Cash is going to be short in November. So what are we going to do today when we have time to make those changes. Basically make those proactive changes today. Or maybe the idea is, hey I want to be debt free to buy a house in 2020, how are we going to make that happen? So by flipping it over to the balance sheet she can show the client, hey based on that here's how we're paying down the debt. Here's how we're building cash, and then we have hiccups along the way. Oh here's how that impacted it now. So instead of paying down debt as quickly as we thought maybe we're a little bit slower pace or maybe it's a quicker pace because we're doing really well. And so those are the kind of the key things the tangible things that people can talk about. Michelle and her team can actually go ahead and project how that will actually happen.
Jamie Nau: Yeah and then once the forecast is set I think a lot of companies do budgets and a lot of companies that even the really good ones will do forecasts. But the one thing that we do a lot is we use the forecast as a tool. So if you come to me and say, hey we have this great digital agency but I also want to open a coffee shop. You know we can we can put that into the forecast and say, OK how many cups of coffee do you need to sell and build that out for you and help you understand how those decisions will affect the bottom line. And I think that's a lot of times what we do is we don't just look at the forecast and move on from it. We saw a lot of projections and there are a lot of times it’s the first time anyone's ask any type of question. That's the first thing we do is open up that forecast and try to run some numbers through there again.
Michelle Lesifko: And I think what else is great too is that we do take it one step further is that when we are finalizing the next year that when we find 2020 where we want it to be that becomes our plan. So that's it we know nothing really ends up this plan. And so really we can say, OK well we progressed and we can see how our forecast is doing. And our forecast constantly changes because of the actual is that are coming into it. But we're always looking back at well what was our original plan? What was the original and where? Why are we different? And is this an understood? Ok this makes sense. OK. Now we weren't anticipating this and if that is the case how can we possibly proactively project that going forward if need be? So I think that's another key factor that I think goes a whole other level of just the forecast.
Jamie Nau: Definitely. Right. So the other tool you mentioned when you were talking earlier was about the cash flow. So could you dig into a little bit about that and what that looks like and how often that meeting is held and really what's the value of that?
Michelle Lesifko: Absolutely. So I kind of like to think that yes the forecast even has that cash flow piece. Our forecast looks on a monthly basis throughout so we can go anywhere from three to five years even on a monthly basis on our forecast which is excellent. But then we need to go even narrower and our cash flow does that by looking out 13 weeks. So we can go down to the day of seeing when things are going to hit both incoming as well as outgoing, and try and project and see where our cash is going to be over the next 13 weeks. It takes an analysis of what we did the last week and we meet weekly to get an understanding because that's really key. Usually we're meeting right before the normal payment process happens so we can see where we're at and how much cash we have to cover the needs of the next week, and to see if we need to shift anything depending on the cash needs. What I like to do normally is depending on the circumstance it can go down to the effect of you know even past due and when things are happening and when things are going I'm a devil at Devil's Advocate. So I like to do worst case scenario and I say, OK if we don't collect another dime how long can this cash last us? And that can kind of give us some comfort but also know you know. OK we're going to collect some.
I mean we sure hope but if something doesn't go downturn this is how long our doors are going to stay open is really what it is. So this kind of gives a little bit of comfort to some of the owners as well to understand. But then also to kind of see, OK well crap, but look at how much we have still left an outstanding are good. God if we could just get over that and we could this could take us even farther. So giving that really detail. And it also kind of is aware of, OK do we have some troublesome clients, should we not be working with them? I mean it really can go so deep. Or payables, what can we do with some of these payables to kind of se where some cost savings are. Why is this growing so much? And then another big factor that is key to as well is kind of what Jody brought into the fact is if there is debt we're building that out how quickly or whether it's a weekly payment of monthly payment whatever it may be if we want to accelerate it if we got a little wiggle room and seeing how some of that debt plays into factor too.
Jamie Nau: Yeah no I definitely think that the cash flow is really important. I think that especially with digital agencies because a lot of ones we start work with right away you know we always encourage recurring revenue, but a lot of them live project to project. So you know we could look really strong today, 90 days from now. Good night. You didn't close two out of those three deals that you were hoping to close, and then you really could go from, my cash is fine to I need help. And having that conversation weekly just really helps you feel comfort in that area right.
Michelle Lesifko: Yeah and you're looking ahead and you're seeing, OK if I don't, and that's a big thing on collections if you got some troublesome collectors then that plays a huge factor and we're looking practically down to the day. So when payroll comes around it’s not a big surprise of where money is going to come from to cover payroll or what have you.
Jamie Nau: So Jody if I look at the Summit website we have three levels of services. Can you dive into those a little bit and kind of tell what the difference between the transactional, controller and CFO level services are?
Jody Grunden: The transactional levels is what typically we see other CPA firms offer. It's basically a historical look at the financial statements on a monthly basis usually done by the 10th of the month in which we're kind of digging back and showing, hey here's how you did and here's how things are going. It's more of a security blanket for those that really don't want to spend the money, or feel that they've got a really good grasp on everything else they can kind of look back and say, hey you know here's how we did you last month, last year to date, you know that sort of thing. The controller is where we actually start implementing the forecasting side. So forecasting a high level KPI is and what I mean by high level KPI is it's not the KPI you're going to find in your fresh books or your quick books or zero. Whereas financial KPI is mostly it's non-financial KPI those things that we can actually control. And so with those we're looking at high level. For a digital agency a lot of times its average bill rate, it's utilization rate, you know, it's a full time equivalent you know different things that we have actual physical control of you know. And so we'll actually show those non financials and how those were impacted and we're creating the forecast, but it also does include wrapping up the financials. Similar to the transaction we were wrapping up the financial state making sure that it's a financial statement presented on a timely basis. Typically 10 days after the month's end and then the CFO service which is like an all-encompassing service so really anything goes with that. You're looking at job costing we're looking at the forecast for look at the KPI eyes. We're actually digging in deeper on the KPIs instead of looking just at the high level company level we're looking at the internal level so you're looking at employee profitability, job profitability per client as the job is going as a completed, so that we're tracking. Asking, hey how are things coming along? What type of things can make those reactive or proactive adjustments along the way. It may be on building type but maybe you know hey every time we have a flat fee client we lose and so maybe we're not adding enough cushion to it, whereas if we have an hourly rate client we come out ahead all the time or a value based client we come out even more ahead. So it gives us that ability to actually look internally to see how things are going. So the way to look at that is we're taking full responsibility or ownership of that. The financial statement process a lot of times that's done both the comptroller and the CFO levels done with a company or somebody on the other side, meaning that they may have a team of individuals or one individual or a couple individuals on staff that we will oversee and help that process through. And that typically we see that about 70 percent of our clients actually have somebody on staff and then about 30 percent we are that staff as Michelle mentioned and we can do the back office. And so the back office can be incorporated into any one of those levels of service. If they want to do cash flow, or if they want us to pay bills, or do accounts receivable, we can incorporate those types of duties inside from the transaction all the way to the CFO as kind of an add-on. And we do that for various clients depending upon their needs and wants as they go through. So all-encompassing it's like you get everything on the CFO and then you get you're very limited on the transaction. So all three are high level services. And I say high level but with a transactional it's definitely a step up from what clients have had in the past even if they've had that type of service because we are truly meeting with them on a monthly basis going over information and helping them really even at the smallest level.
Jamie Nau: So if I'm listening to this podcast, what's the one thing in the back of my mind, the thing I'm thinking of where I might need to go down this path? Is there a certain question I should keep asking myself? Or what makes me think I need a CFO? What time should I call start asking around for virtual CFO firms?
Jody Grunden: Usually when you're asking that question it’s pretty much the time to start looking. We typically see clients come to us when they've exceeded the million dollar mark. Typically when under the million dollar mark they still feel they've got a lot of capacity internally to do things themselves and for the most part it's a pretty good idea for them to do a lot of things themselves. But if they're in high growth then that's a little different. So if they're in high growth at the under a million, well then maybe it is looking at the, hey we need to hire somebody that actually makes sure that we grow profitably through that. However, typically we see people start reaching out about a million - 2 million, I’d say a million five in revenue, which equates to about 10 to 15 employees. And those folks are looking for somebody that can take a little burden off the owner's shoulders so that the owner can then do other things, or maybe they've entrusted a bookkeeper to do their stuff and now they need somebody a little bit more advanced and so they're wondering, hey am I missing something? Can I be more profitable? What should I be focusing? All the different things that are kind of keeping me up at night. That's the burden that we helped take off their shoulders. And then when they are at about the three million dollar mark, that's typically when you see them say, hey we want a full level service, where they're wanting a CFO onboard because now they've got a leadership team and they've got tons of employees, you know tons employees, 30 employees roughly, and they're like wow, I've got a lot of responsibility now. So now instead of just, you know, supplying for my family or supporting my family, I've got 60 families, or 30 families, and they've got kids and spouses and so forth, and so I feel that burden on their shoulders. You know, hey I've got one hundred people I'm looking after I can't really make a mistake. And so that's where they ask, Can you come in and help us? Guide us to make sure that we do things right and where I can bounce questions off, or helped grow or e maintain a profit margin, or help build cash or whatever the risk factors might be that we need to come in and try to eliminate, you know that's when they start doing it there.
Jamie Nau: Any other commonalities you see Michelle among new clients that come on with us that kind of led us in our direction?
Michelle Lesifko: I would say that majority of it, is one of those, and I laugh one of my clients that has the back of the napkin just doesn't work anymore. They have gotten so massive and a lot of times it's the last thing that they want to deal with. It's been working so far but they know they’d probably go so much farther if they had the proper staff and the proper support in that aspect. And I think that that becomes such a first comment of relief that usually ends up coming from them during you know when someone comes on board it's like huh, this has been such a relief—I don’t want to deal with this stuff but I knew it had to be done, or I had no idea I was flying by the seat of my pants type thing. To where it's like, OK it's been working but I know it needs some serious work or you know if there's a change in staff that's always a good opportunity too if you're seeing something coming on board where possibly you do have someone in. Or like well I don't know if I need the full in-house per say, but are looking for something different. Looking for a challenge looking especially for that forward looking. That's really where can come into play.
Jamie Nau: Yeah I definitely agree with that. I think a lot of times the CEO or the owner start wearing a lot of hats and some of the hats the bigger you get a little heavier. You know like I don't want to wear this financial hat any more I need to give that to someone else. And so I think that's a lot of times that I see it's like they're just spread too thin and they can't focus on what they actually are good at, or what they want to be doing, and that's when they come to us. So that's very common.
Michelle Lesifko: Yeah. And they start to lose their passion I think because they're wearing so many hats and you know the reason why they started the business is not the same because they're stuck in the weeds on stuff that they don't like. And so that's one. But sometimes it's hard to give up that power. But yeah definitely, you can tell it's like you need to release some of it.
Jamie Nau: Well I thank both of you guys for joining us. I know you're busy being virtual CFOs out there in the world. But definitely appreciate your time. In future episodes Jody talked a lot about some of those KPI and we'll start digging into those. I'm excited to dig into those with some other CFOs joining the show. So thanks for joining Jody and Michelle and thanks for listening.