The Virtual CPA Success Show: Episode 2

In this episode, Jamie Nau sits down with CEO, Jody Grunden, and COO, Adam Hale to share why they’re passionate about working with creative agencies. You’ll also hear the way Summit CPA works with agencies to help founders and critical stakeholders gain a clearer understanding of where they’d like to be.

Jamie Nau: Welcome to episode two of the Virtual CPA Success Show. I'm your host Jamie Nau and I'm the Director of Accounting here at Summit CPA. In last episode we discussed the beginning of Summit CPA with Jody Grunden and Adam Hale the two partners. Today we're going to dig in a little bit more on our experience with creative agencies. I'm going to start with Adam to talk about what creative agencies means for Summit CPA.

Adam Hale: Thanks Jamie. For us creative agencies, it's kind of a wide breadth, but it's design and dev agencies primarily. Sometimes we'll get folks that are design only or dev only and then we're also working with a lot of folks in the SEO, PPC world. So those are the main two. And then as a result of that we've also been starting to work with more clients that have products. So a lot of our design and dev shops have an idea and are taking it to market. So we do have some exposure with that and some people on the web have come to us just with product only. So those are the three main areas: design dev, SEO and PPC. And then some product based work.

Jody Grunden: And I'd say that probably amounts to about what 70 percent of all our clients that we work with on a regular basis don't know the exact amount. I think we're probably one hundred one hundred and five somewhere in their clients right now that work with us all throughout the United States. And I'd say the majority of them for sure have been to this creative agency space and I would say over the last probably five years or so I'd say probably 90 percent maybe 95 percent of our new clients have been in this space.

So that's been our very heavy concentration for us especially over the last really since 2011 to be in the space and to really understand the vernacular understand what the highs and lows you know what makes that creative agency tick. And we've got that pretty well under and now.

Adam Hale: I think we talked about it last time but our very first client actually was an email to you Jody, right? Because I remember going into your office and looking at our website thinking, are they like wanting to fix our website? which was garbage at the time. So we totally thought that was legit but it sounded like it was more for VCFO services. But yeah it was a pretty cool conversation whenever we were able to sit down with them and kind of talk through that stuff.

Jody Grunden: Yeah the funny thing about that one was that it came through my junk mail and course I never read junk mail at that point and so it's one of those things that came through junk mail never looked at it. For whatever reason just completely coincidental decided to look in at that time and that's what we found that email. And like Adam was saying, it looked like it was a solicitation email and I couldn't really tell the difference. You know so I talked to Adam about it and was like, let’s give them a call. We did and it was kind of a fun conversation.

You know as a company out of Rhode Island called Lullabot, their a design and dev shop 60 people, pretty decent size firm and they wanted to know if we were interested in being their CFO and prior to that we really didn't have a CFO engagement that we couldn't actually go and talk to go and visit on a regular basis. A lot of times they can actually stop by the office or we could stop by their office. In this case we couldn't do either. And so it was kind of a cool thing. Not only was our first virtual ,true virtual client, but it was in the creative agency space. And you know from there just pretty much went on. They loved the idea. They loved our website. That was the kind of funny that Adam was cracking at our website. The reason they came to us because they loved our website. It wasn't a traditional accounting firm it wasn't a stuffy thing that you see a lot of times, especially for legal or accounting professional, it was more of a laid back type of approach and they really liked that idea.

And you know that's kind of become you know basically become our you know our personality as a firm you know kind of laid back doing things a little differently. And it all stemmed from that very first call in 2011 from a creative agency and from there it's been a pretty wild ride ever since.

Adam Hale: Yeah and websites like us, the contents great the inside we're just not packaged real well.

Jamie Nau: So after working with Lullabot, was it was it love at first sight with creative agencies? Or did it take a while for us to figure out why that was the industry we liked? What made us stick with our creative agencies after all this time?

Jody Grunden: Yeah for me it was it was right away. I have a background in marketing so marketing has always been something I've really enjoyed a lot. And it's just something that I've always started from day one. Branding is huge part of what we do. You know everything because we don't sell. When you think about it, we don't sell a tangible product, we sell a service, so anything that we deliver has to appear and be something very professional looking, something that you could look at. You know so 10 people to look at it and say, oh that a Summit CPA product—that type of thing. And so when we met with the folks at Lullabot you know they had the same demeanor that we have you know everything just really clicked. And I thought wow, if we get a lot of these, companies like this, this would be great because we really fit into that culture model I guess you could say. And it just happened that they started referring like clients to us. It was kind of a cool think. We picked up a company out of Texas called, Four Kitchens. It was probably went two or three months after we had maybe a little bit longer after we'd worked with Lullabot. And it was kind of neat because they referred a competitor, which is kind of weird in the industry. You wouldn't see that with accountants. Accountants wouldn’t do that, they wouldn't refer another accountant, typically. It was a kind of a neat thing. And so once it started picking up where we were working with you know two, three, four, or five of these, I was like, this is pretty cool! I really like to, really explode this type of thing. But then it's really tempting, right? Because it's like, well do we want to really narrow our field? or do we want to do this for everybody? And once we made that decision, hey let's stick with the narrow niche of course we'll pick up anybody in that regard if they’re a good fit, but let's focus on that narrow niche. And when we start doing that it was ,like I said, it was great.

Adam Hale: It came pretty natural too just because you know we focus on our business as business owner. So we're always looking at our metrics and dialing in our forecast and being a service based business. Even though we don't necessarily bill by the hour or do anything like that, it doesn't really matter if your time and billing you know in terms of that scenario or you fixed fee or value based like we do. It was just real natural. So it was a really good fit culture wise, it was, you know, we learned a lot from a technology standpoint so we were able to do some back and forth sharing there, and then in terms of the metrics and growing the business and everything. It was very similar to our business. So as is again is just real natural. So it's been great.

Jamie Nau: That is it's definitely a very close industry. So I think that that definitely helped. Can you expand on that a little bit Jody and how that helped and how it was defined conferences and how we really grew from there?

Jody Grunden: Yeah. At that point in back in 2011, Lullabot was a distributed company at that time and we'd never even heard of a distributed company because there weren’t that many, probably only 25 - 30 in the nation. So that was a very small group of people and companies and we thought, you know, hey this would be kind of cool if we could do something similar to that. And so when we decided to really take the plunge we attended a few conferences, one was out in California called, Yonder, and from there it was one of those deals where you know all these distributed companies there was a kickball company, other marketing companies, all these really cool group of people were hanging out.

It was like this was pretty neat. It just happened that one of those folks was actually ran basically a leadership conference called, The Bureau of Digital. Carl Smith is the gentleman’s name. A real great guy, real good friend. And he asked at that point—of course we don't know each other. He asked at that point, would you be interested in doing this in front of a group of leaders, leaders in the industry? And I said, yeah that would be great. And he's like, do you have any marketing experience? And I was like, like yeah sure. I definitely speak in front of people that's not a big deal. And he's like, would you be interested in doing this in a couple weeks? And it just kind of kicked off from there, we started meeting with him going through that. And then he asked if we could do additional ones and that really kind of sparked that thought leadership and we started becoming the thought leader in this industry. And the cool thing about it was that it started from one company back in 2011. We then started picking up you know two to three, to four to five companies a month, helping them out with strategic planning and KPI,s and all that kind of good stuff that really helped the business grow.

And so it was a really cool thing, and then the nice thing about it is that we've had other companies approach us, asking for different things SoDa and Drupal and others to talk in front of their you know their group of people to help them become successful I guess or help them grow help them create a vision. And it's been a pretty cool thing from there.

Jamie Nau: So Adam can you describe our ideal fit for a client? So you know anything from size to location, anything that really describes our ideal client outside of obviously being inside a creative agency.

Adam Hale: I mean in terms of the geographic location I mean we're coast to coast. I mean we typically work with agencies that are in the United States or at least have an office in the United States so we have others that obviously have contracted relationships or maybe co-located outside of the United States. In terms of the size, we actually geared our packages towards different sized levels because we know that smaller agencies need different things than larger agencies. So on our website we have transactional services which might be under 10 shops that are just looking for some compliance help it's really tax driven and structure driven and just want to make sure they're doing the right things and we stay on top of things like R and D credits and really looking ahead on that. And then the next step up is really those agencies from about 10 to 20 people where you haven't maybe formalized a big leadership team yet but you're starting to get the COO.

You know the owner's not involved in every single thing day to day so that's kind of our controllership level service. And then our VCFO service is typically about 20 people or more in terms of agency size because again there you've at that point you've probably created a small leadership team. And so we join that team as the financial person and we kind of take the reins as far as that's concerned. So from a people's size and of course that really depends on you know there's also other factors that are included in there.

So we do have some smaller agencies that might be on the VCFO side but typically that's where they fall. From a revenue standpoint we start talking to folks right around a million dollars in revenue and annual revenue all the way up to 50 million. But I'd say our cores from anywhere from five to 20 is where the most the majority of our agencies that we work with land. But we do work with tax only as well. So for some of those startup agencies our tax director is really great. Since he knows the space in the industry and the R and D stuff we will do tax only for some folks just to kind of get them started.

Jody Grunden: A recent question was asked well how many clients do you have that typically has some accounting person on staff that helps out? And we typically find about 30 percent of our clients we actually do the back office stuff where we're actually that accounting team. And then the other 70 percent typically have somebody on staff and so that's where we see the 5 - 50 million that Adam's mentioning there. We typically will sit alongside an existing team of accountants or even a CFO a lot of cases which will help a CFO migrate through the land mines and really kind of help them create vision because we can bring a lot of vision outside because a lot of times the CFO will only know how their company is doing we can bring the color of you know, hey here's how the industry is doing, here's what's working, here's what's not working, a lot of times you can incorporate those ideas into their business model.

So know it's kind of a unique thing where we can do as little like Adam was saying from the tax return, to you know as much as you know everything you know tax during accounting and CFO work

Adam Hale: Yeah because we do back office work for, you know, like you said ,about a third of our clients, but the CFO piece is another interesting one. So whenever we see clients getting up closer to that 20 to 50 million range, a lot of times they will have a CFO on staff, or some of the agencies that have multiple partners, maybe the partners wear the CFO hat. So we kind of come in that F, P and A role, like financial planning and analysis, where our focus is really on forecasting and providing some clarity around the numbers and the reporting and everything.

So we kind of are the plus one on the team to help that roll out, because oftentimes when CFO gets big, the role gravitates to more operational stuff. So they're working more with contracts and doing more day to day stuff so they don't really have time to oversee the day to day financials and the forecasting and such. So we do all that and then cued up for them.

Jamie Nau: I think that's what makes Summit unique especially from other CPA firms I've talked to they're kind of backwards from us. They really want the accounting ,they really want the back office, and they'll throw in the CFO or controller stuff. We're kind of the opposite. We really want the controller and CFO and forward looking stuff and if they want us to do the accounting we do have those skills in-house. So I think that definitely is unique in the accounting industry

Adam Hale: The other piece though is that I think what makes us unique too is everything's a two person team minimum. So whether or not we're doing tax or whatever. So we bring the VCFO whose focuses more on strategy and in kind of staying on top of the plan, and then also Senior Account which is kind of equivalent to a controller. So to Jody's point even if we're not doing the back office, the controller is kind of the go to person for the accounting person in-house. So they're kind of watching over things helping close the books making sure things are done accurate and timely, and then rolling that up to the VCFO and then the VCFO is then you know focusing on clarifying direction through forecasting and metrics and those kind of things. So that two person team is also unique because a lot of times it's a solo person. We do that for a lot of reasons, one just because those mindsets are totally different is the primary. But it also offers up some good redundancy at that at the service level as well which is super cool.

Jamie Nau: Yeah it's interesting a lot of times companies will come to us with that bookkeeper in-house and they'll say, is this going to be awkward? And we are going to say, actually within a couple months or bookkeeping is going to love us because they're going to have another accountant to bounce ideas off of and talk through. So it's actually a really good situation to be in and with one of the ones we really like working through.

Jamie Nau: So when companies do come to us, Jody how should their finances? Can they be a mess? What would range of companies do we see coming to us when it comes to their finances and where they're at?

Jody Grunden: That depends on who you are talking to, our staff or us? Our team would love it to be perfect coming in but of course that's very rarely the case. A lot of times they really have no idea how good or bad their books are when they when they come to us. So you know a typical question we'd ask during the prospecting call we would ask, are your books are in good shape? They're like, oh yeah books are in great shape blah blah blah. And then we get into and find out that they're a disaster. And so it ranges pretty big time, and it really depends on the quality level the person that's actually working on it to where maybe they do come in they're great. Other times they don't. So it really makes us no difference because we actually go through an onboarding phase where we're actually cleaning up the books, bringing the year to date numbers to where they need to be, and really kind of fixing things rearranging the charts of accounts so it's industry norm type of things that we can compare from one company to the next. So we're doing a lot of the restructuring behind the scenes that first six - eight weeks anyway so as part of that we're making sure that everything is very clean.

And the reason being is because if it's garbage when we're presenting you know strategy our strategy is going to be garbage. So it's that garbage in garbage out concept that we talk about a lot. We need to make sure that they're clean and that our CFOS those are all on the same page and understanding exactly what's good what's bad with them.

Adam Hale: The big thing is, as Jody mentioned, time back the tax returns is key. I mean we've gotten a couple where it's like it's not the same company. You're just like, what the hell? But for the most part we're going to be doing some tweaking anyway to get that chart of accounts in alignment with the industry. Revenue Rec is usually probably the biggest thing that we need to make sure we understand. How the client does it. how we recommend to do it, if there's any kind of changes that need to be done if we need to go restate stuff so we can kind of tell you what's going on because those metrics are really reliant upon good revenue recognition.

So if it's cash basis we've got to figure that out. We don't want to yank that view away from somebody if they're used to seeing it that way so we'll kind of keep it and run it parallel for a little while until we can kind of bridge the gap of how we really should be kind of looking at some of the stuff. So we're super sensitive to that as well.

Jamie Nau: And you mentioned the chart of accounts. I think that's also important just to bring in there's that we do compare clients to each other. We don't say, ok you're compared to this client. But we do put you in a database and say, you know we're used to seeing as a gross profit of 50 percent and if the chart of accounts is incorrect that's where it really can get skewed. So we want to make sure we're comparing apples to apples and we are telling one company your gross profits amazing because you don't have any payroll costs in there. Well everybody else has all their payroll costs inside of their admin payroll costs outside of their but their production employees within there. So we do want to make sure we get those kind of accounts correct so we can compare companies across the board.

Jamie Nau: So I would like to kind of hear some stories that we've been working with creative agencies for a while I'd love to hear some success stories about companies that have come in and some ideas of what we've felt has been successes with these companies. So I'll start with you Jody.

Jody Grunden: Yeah I'd say the biggest one is just simply that you know we give them a vision so before they're kind of just going along and whatever happens and they really don't know why or do they don't know really what to expect going forward. So the biggest thing is giving them a clear vision of what they what they should expect going forward so they can kind of test the waters a little bit so they kind of plan a little bit. And in doing so we tell everybody you know you need x amount of dollars in the bank. And that's one thing that they can strive for. And the funny thing about it is, and Adam made this really kind of funny point at one of the conferences we were at is that, you know in order to achieve or to build cash you got to have profit. And talking about profit amongst creative agencies was a bad word. A lot of cases were like, well we don't want profit we want to give all the money to our employees blah blah blah. Which is great. But in order to do that you have to get profit

So we were teaching, hey here's the profit that you need to have in order to build this cash to the amount of cash you need. And I would say just from the very, very first client on, you know, they did come to us, and they'd have a lot of money in their line of credit. And you know we would give them the vision, within two years we can get that down where you have nothing on your line of credit. You're building a cash reserve to a million dollars and you know, maybe they are a 5 million dollar company and we're kind of going along like this to be great. But that vision is kind of funny once they had that vision they attend to it. And so you know that that's kind of I think a problem we had, without singling out even one client. I would say that's pretty much a trend for gosh over half our clients at least is just simply giving that that vision to do it.

One particular case is kind of offset one is that a company when I was at a conference gave me a call at that time I was actually doing virtual CFO stuff. This was probably back about six years ago and the company, brand new company, called and we engaged with them. Learned they've been at this for maybe three months. And the owner, I was at a conference, it was probably 10 o'clock, just started lighting up my phone. I couldn't answer because I was in with a bunch of people, First I didn't realize that I had phone on silence. so he was actually calling. And then after about 10 phone calls from 10:00 to 2:00 in the morning I finally reach back the next morning and say, hey what's going on? I saw you called me, 10 times, Is everything OK? And he's like, hey I've got this big deal going by tomorrow and I'm going to put this contract in place. So we're talking through the contract and he goes, I think it's I think it's about a four hundred thousand dollar contract and we're talking through it. And he's like, but I don't really know, I don't want to limit myself on it. What do I say? And I go, well the easiest thing is just simply going back and asking what are they budgeting for this?

And he's like, well they won't tell me that. And I, well how do you know that? Just ask him. He's like, OK. And so he went back and the next day all of sudden my phone's lighting up again. I'm thinking, oh no, what did I do? He just lost his contract. You think you think the worst, right? And it's like oh should I even answer the phone? I'm like OK. I answer the phone and he goes, you're awesome! He goes, you definitely earned your money. And I go, why do you say that? He goes, I did just that. I went back and asked them how much are they budgeting for the contract and they told me one point two million dollars. He's like, oh my gosh if I would have come back with 400 thousand I might not have got the contract for one. But then it gave us so much leeway. We could do so much more things because we had no idea that they were planning on spending it and our profit margin just got a little bit bigger.

And he goes, and it's all because I just ask this simple question. And it's kind of funny because those type of questions you know we don't think twice about it because we hear about it all the time from all of our clients and just kind of a natural thing. But it was a cool thing I could just bring that up in casual conversation and it made this company an extra 800 thousand dollars that they didn't have the time before.

Adam Hale: Yeah I think that's the big thing is that it's just the small stuff. So I mean it's not like there's this huge silver bullet, especially with a lot of design and dev shops. I mean they're cash ebbs and flows—their sales too. The biggest thing that I noticed probably working with clients more closely and what I really enjoy, is like a long time ago whenever you just meet with a client once a year or a couple of times a year, you knew the client ,you understood their business a little bit but not really good. And you knew their information was kind of OK. Well whenever the client had a question for you like what Jody ask you weren't prepared to give them a good answer. You're like, well it depends. I mean if it's this, it's this, if it's this, it's that, and then you would say, well I'd have to dig in and then maybe you have to do some research for a couple weeks you know those kind of thing. Because we work with the clients on like a daily weekly basis—we have that information ready.

So not maybe just with advice like that, but anything. It's like, hey I'm thinking about hiring three people. Clarifying direction is kind of our main focus. And just having us on call whenever you need us for those little small one off things that happen, I think that's the thing. I mean business is a big ship, and you can't turn that thing really fast. I mean it's a lot of like, small moves to get to the right place, and that's what we help with. I mean we design where you want to go. We show you the best path to get there. And then when life happens and we get off track a little bit that's how we use the forecast just to kind of dial ourselves back in. We have to reroute whatever and being able to work with clients on a daily and weekly basis gives us the ability to do that. So I think that peace of mind is what you would probably hear from most of our clients.

Jody Grunden: And I would say the cool thing about that is no matter how junior or senior that CFO is, we have so many on the team they can just pounce over and say, hey Audrey how did your clients handle this? And they get back to them right away and say, hey Audrey has this great idea that worked for her. So it's kind of cool because we can balance different ideas off different people throughout our team no matter if they've been with us for six months or 10 years it really makes no difference. We leverage each other so well that it really brings a high quality service to the client.

Adam Hale: Yeah we're super collaborative on the backend. I mean it's definitely like kind of a brain trust in terms of you know information sharing and so we're constantly on the back and going back with different experiences and making sure the whole team knows that way we can leverage each other or each other's contacts if needed. So that's a great point too. So instead of getting a person as great as Jody is, you know he doesn't have all the experience in this, being able to lean on a Jamie or a Jake or a Audrey or a Tom or whomever on our team is a huge, huge benefit.

Then just statistically overall like Jody said I think the proof is that a lot of our clients have had the ability to build their cash reserves. Stop using the line of credit, use their own cash, build their taxes. It's about being liberate exactly what he said. You know there is no science behind it. It's like gravity. You show somebody where they need to be and how they can get there. They make all the right decisions. And in kind of it's just the little things in the back of your mind to move you along that add up to that that big stage. And for us it's cash because that's what's key.

Jamie Nau: So I think that too. I think that the key is you know being in one industry. That's the value of the conferences. Like we go to these conferences and we go to these events and I'm there to learn as much as I am to educate. I'm there to sit there at the bar at 10 o'clock at night and talk to someone about what they're doing and they might tell me an idea like that's a great idea and I can bring it back to the CFO team and say. you know there's companies out that are doing x y z and then we can pass that on. And so that's one of the value of us being so in touch within this industry as we get that advice from not just our clients, which Jody said is you know somewhere between 60 and 70 digital creative clients, but we get it from these events as well.

There's people there that we've talked to by five times that aren't our clients that we can use the knowledge base as well. So I think that's one of the advantages of this industry.

Adam Hale: That's a that's a great point. I mean that's the thing is like these folks I mean whenever we're able to leverage the other experiences and just learning. I mean we're business advisors. So I was actually just talking to one of our CFOs about that the other day. So even though you know, nobody puts baby in their corner, like we do finance. But we have a finance lens right over the entire side of the business. So we want to hear about what's going on in the marketing, we want to hear what's going on operations, because that helps us craft the plan in that way whenever you come up with an idea, and we need to flesh it out, we can go, wait a minute isn't that contrary to what we were saying over here and what we're trying to do?

So we need that holistic view. Again we look through a finance lens, but we need to see the whole picture. And I think that's an important point as well. It's like that's why we want to join the leadership team. So it's not like you have to carve us out whenever the conversation starts getting you know over into a certain area of the business we need to hear that stuff

Jamie Nau: Yeah I was I'd make this joke to Adam all the time, a lot of times these digital marketing or creative agencies were working with or in the marketing space. But it's amazing how many times I have to consult on marketing and have conversations about marketing even though I'm the accountant. So it's just it's amazing the knowledge we get from those conferences we go to and the amount of clients we haven't things we can talk about outside of just finance through a finance lens so we can always have that well from finance from a finance point of view. So it's definitely wide.

Jamie Nau: So I think that is time. I want to thank Jody and Adam for joining us. And we will be back in another two weeks to talk more about the actual virtual CFO role and what that means. So thanks again Jody and Adam.