December 7, 2023

Cash Flow Forecasting for Non-finance Professionals

In this podcast episode from the Summit Virtual CFO by Anders Modern CPA Success Show, Tom Wadelton and guest co-host John Scott, Virtual CFO and legal industry leader, are joined by Terrell Turner, CEO of the TLTurner Group, to discuss the importance for non-finance professionals to understand financial metrics, specifically law firms. Terrell shares his insights on bridging the gap between accounting and non-finance professionals, emphasizing the need to align goals with the reality of the business. The conversation also dives into the importance of cash-flow forecasting and the evolution of forecasting tools. They highlight the value of involving non-finance professionals, such as lawyers, in the forecasting process and the benefits of networking and leveraging outside resources.

Check out the full transcript of the episode below.

Intro (00:00:00) – Welcome to the Modern CPA Success Show. The podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) – John, how are you doing today? 

John (00:00:24) –  I’m great, Tom. How are you? 

Tom (00:00:25) – Good. Hey, we’re introing the Terrell Turner podcast that we did. I’d love to hear kind of your thoughts about what our listeners are going to hear. 

John (00:00:33) –  You know, the best part for me was hearing how Terrell communicates with law firms and law firm owners in a way that they can understand not only their accounting but their cash flow forecast. 

Tom (00:00:45) – Yeah, I agree very much. And that’s very much in line with the kind of work that you do, as well. In addition to that, we talked about networking, and he’s got a kind of unique take on that, and I think a really nice story about how he’s built that into his practice.

Tom (00:00:58) – That to me seems very practical and something that has obviously gotten him a lot of success. So really hope people enjoy this episode. 

John (00:01:06) –  Agreed. 

Tom (00:01:06) – Okay. Welcome to this episode of the Modern CPA Success Show. We talk a lot about niches, and we’re going to focus a little bit on that today. We’re also going to talk about networking, some other really good things. I’m Tom Wadelton. I’m a virtual CFO with Summit Virtual CFO by Anders, my co-host today, John Scott. John is a partner with Anders and also is developing our niche around law firms. John, welcome. 

John (00:01:32) –   Thank you. 

Tom (00:01:33) –  And our guest, Terrell Turner. Terrell started Turner Group. Terrell, you want to tell us just a little bit about yourself, and how you got up to the position that you’re in right now?

Terrell (00:01:51) – Yeah, so I started off probably like most people studied accounting, went into public accounting, figured out that wasn’t the route I wanted to go.

Terrell (00:01:59) – I didn’t want to be an auditor. So, I started doing corporate finance and in the process of doing that, I realized like, you know what? There is a need here for non-finance professionals that need help understanding the numbers, and I just followed that path and eventually started my own firm to really focus on that, helping non-finance professionals understand the numbers and how it impacts their decisions.

Tom (00:02:23) – Interesting. What I’m curious about is if you have any little stories about things that you said, okay, whatever we’re doing today isn’t working. There’s a need here that is not being filled. I’d love to hear anything you saw with that.

Terrell (00:02:33) – Yeah. So I worked at a couple of Fortune 500 companies, and one of the roles that I had was in Investor Relations. And I remember at the time, because the company I was working for was about $14 billion and we had to make an announcement that A, we had spent about $950 million on a product strategy that wasn’t going to work. And so I was helping the CEO write like what we were going to say.

Terrell (00:03:03) – How are we going to explain this to the Wall Street analysts? And there I really started digging into some things, and there were some other things we were doing. And I’m like, you know, there’s so many technical things to explain about like accrual sunk costs and all this stuff that people just weren’t grasping. And I’m just like, all right. People are going to, you know, make decisions based off of what they think they understand about the numbers or what the message we’re trying to deliver. And I’m like, you know what? If I can get better at being able to communicate this information, helping people understand what this really means, then it’ll probably improve the decisions that people are making. And so for me, that was kind of an aha moment. And like for the next several years, I really was like, okay, how do I get better at that? Um, you know, translating these numbers into something that is actionable and insightful so people can make better decisions.

Tom (00:03:58) – Yeah. And when you mention that explaining to a CEO of a large company and Wall Street analysts, you’re already in a pretty high level understanding of finances or you’d expect to be.

Tom (00:04:08) – So if you’re seeing it there, I would assume you would say when I get to the masses, maybe some smaller companies, things like that, the need has to be greater, right?

Terrell (00:04:16) – Absolutely. I mean, just the number of times that I would spend explaining, you know, some like accrual accounting to Wall Street analyst, it blew my mind sometimes because, like, I had to tell them, like, your motto is completely missing the point. I’m like, now because of insider trading, I can’t tell you what the right answer is, but I can tell you your model is missing it. And we ended up I have to explain, you know, accounting and accrual accounting and, you know, use some general terminology to help him understand like why his approach was wrong.

Tom (00:04:52) – Yeah, that’s cool. 

John (00:04:54) – Well. Tyrrell, you’re so right. When you’re talking to clients, you have to be able to tell a story that they can understand so that they can make good decisions. And not just the accountant helicopter speak that some of us historically talk to our clients with.

John (00:05:09) – They don’t understand that.

Terrell (00:05:12) – Absolutely. Because, I mean, I found that, you know, the accounting teams and the different company has worked at we spent a lot of time amongst each other. Um, and we weren’t spending enough time with our non-finance counterparts. And, you know, when you start a firm like that’s, you know, all you pretty much do is spend time with non-accounting professionals or with clients and I’m having to translate things. And then there are sometimes like we’re having team meetings where we’re explaining things and I’m just like, okay, I’m outside of the accounting bubble now to where I’m like, hey, I got to figure out how to add the most value here.

Tom (00:05:52) – Yeah, I’d love to hear some of the things that you found really effective. And I can tell you for us, one of the things that I would say that what we do is focus a lot on non-financial metrics. So, for service companies, as an example, we spend a fair amount of time measuring like the number of hours and your average bill rate.

Tom (00:06:10) – So a lot of our financial statement conversation, maybe if you are low on revenue, focusing more on how you had fewer hours than what we had forecast or what you needed to have in the bill rate was lower and here is why. And that seems to be one of the ways that you are talking finances, but you’re also really trying to talk in a language that they understand and control that. I’m curious if you found a couple of things that were really effective in trying to do this sort of communicating to non-financial people.

Terrell (00:06:36) – Yeah. So we spent a lot of time, you know, kind of translating that or trying to make those analogies. And one of the areas we’ve been spending a bit more time on is helping clients understand like, here’s why you need X number of cases to support your cash flow. Because before, like a prior CFO or an accountant was saying, hey, here’s what your cash flow needs to be. And just like, it just wasn’t connecting with them.

Terrell (00:07:05) – And then we were like, all right, let’s translate that into the number of cases you need X number of cases. And they were like, that makes sense. And so, so I mean, yes, there was you know, there was a good bit of math we had to do figuring out like, what’s their average case value, you know, what’s their average case time? Like, how long does it take, you know, that case to turn into cash flow, Like we had to do all that math in the background, but we did all that to come down to like, hey, if you have X number of cases or X number of leads coming in, and then we look at your conversion, we know how many are going to convert into clients and we know, hey, what’s the average time? It usually takes you to do the casework and turn that into cash; we can start helping them understand that. And I think when we broke down kind of that roadmap from that perspective, it really made more sense to them.

Tom (00:08:02) – Yeah. John, I see you nodding your head. It sounds like many people in the legal profession would get those kind of descriptions. Is that fair?

John (00:08:10) – They do. And when you build your cash flow forecast based on, hey, where are my cases come from, how many leads do I have to have? What’s my conversion rate? Then, they can tie that back to increasing profits and cash flow. But so many attorneys, they went to law school. They’re really smart. They just focus on doing what’s right in front of them. And then sometimes the year turns out great. But if we could lay out that roadmap and say, hey, in order to maintain this and hit our goals, we have to have more opportunities to hit our conversion rate to lead to new cases, then we can hit that profit and cash flow goal that they budgeted for. But if we just do what’s in front of us and hope for the best, sometimes some years are good and some years are surprises and not good surprises.

Tom (00:09:01) – I’m curious, if you’re with a new client, is this a somewhat new concept to them or do they maybe understand the concept? They’ve just never done the math that you talked about to really know what it means for them, or I’m just curious where they are in this understanding.

Terrell (00:09:17) – Yeah. So for a lot of the clients that I’m working with is, you know, digging that deep it’s a new concept for them because I think, you know, most, you know, most law firms have never actually sat down to really calculate like, what’s my true average case value. A lot of times what they’ll do is they’ll look at, hey, what’s my total revenue? How many cases do we currently have right now? And then they just come up with one number. But I’m just like, you have a like a ton of different types of cases. So if we break it down to that level, like, okay, yes, you practice family law, but you have a custody case, you have a divorce, a contested divorce, they’re not going to be worth the same amount.

Terrell (00:10:02) – Um, one is going to be more complex than the other one. And so when we start really looking at it from that perspective, I think for them it’s new when you get to that level. And I think for some of them it’s like they get the concept of it of like, okay, you know, I need this many leads that convert to this many clients. But actually having to go through the math is the part that’s new for them. It’s like they’re familiar with the concept but not actually executing on what does this actually look like or what does it need to look like.

Tom (00:10:36) – Okay.

John (00:10:37) – Yeah. And they have all this data available. They just don’t understand how to extract it and put it in a meaningful way that will lead to those answers. And so and I wouldn’t expect that they would be able to do that because that’s not what they’re trained to do, and they’re focused on practicing their craft.

Tom (00:10:54) – Yeah, that totally makes sense. I’m curious how they probably have some influence over this that would naturally lead toward a forecast. And oftentimes we might meet with an owner who may say, I want to grow by 20% next year and having some of the metrics, you can start breaking that in and say, okay, so is it reasonable that you could do bigger cases and more cases, and do you have the workload and the leads and things like that? Are you finding the same knowing this? Are they able to say you want to grow your divorce practice or custody practice or types of cases? Is that something they have control over?

Terrell (00:12:08) – Oh, yeah, absolutely.

Terrell (00:12:10) – You know, I laugh with clients from time to time because it’s like this is their, um, you know, their moment of honesty or their life searching moment. Because I was working with a client and they were like, you know, they wanted to, you know, they wanted to grow to be a $5 million firm. It’s like, okay. And that’s okay. Where did you get that goal from? It’s like, you know, I was talking I went to a conference pretty excited about it, and I saw someone did it. It’s like, okay, all right, let’s see what that kind of looks like. And we looked at what their average case values were and we were like, okay, all right. For you to hit 5 million, you need to do X number of cases, which means you’re going to need to hire X number of attorneys and paralegals. This is what the size of your staff needs to be. Are you ready to manage that many people and go get that many cases? And they were just like, Oh, I don’t know if I want to manage that many people.

Terrell (00:13:02) – Well, then we should probably align the goal. Yeah, so what really makes sense? But I mean, but I think, you know, I always tell them is that looking at it that way, it becomes a helpful tool for you. Like, you know, to give a sanity check to some of these maybe arbitrary goals that people throw out from time to time. And then I’m, I’m a big fan of people building the type of business that you actually, you know, you actually want. It’s like, if you know the lifestyle you want to have or let’s say the, you know, the income level you want to have, you know, can be satisfied with a $4 million business, then it’s just like, why stress yourself out to build a $10 million business? Because, you know, somewhere in that process you’re going to lose motivation to actually execute to get there. And so really helping people get an honest look at. Okay. All right. That’s what your goal is.

Terrell (00:13:57) – Well, here’s an idea of what it takes to get there. Now, do you still want this goal? Because we can develop a plan to get you there, but you’re the one that has to execute. 

Tom (00:14:10) – Yeah. Very interesting.

John (00:14:12) – Another part of that conversation is they want to grow to $5 million or here are the number of clients you have and you’re going to have to add staff, maybe even another office. So cash flow during that growth period is going to be invested in additional working capital and not necessarily available to be pulled out. So as long as they’re okay with that and they understand that, hey, I may get to 5 million, but along the way it’s going to cost me some cash flow, but it will pay off. If that’s my goal, it will pay off. It just won’t pay off in the short run. They have to understand that investment piece because otherwise you’re going to say, why are we growing? I’m taking home less than I am now. But that’s just because they needed to leave more back for working capital as they grew.

Terell (00:14:55) – Absolutely!

John (00:14:55) – I worked for a long time with a law firm that expanded to every state in the United States, and they would go into a new city, lease space, hire an attorney, and it would be six months before they were at break even. And when they could hire that second attorney, they would start making money. So, we would start eight new offices in the fall of the year. And it would be into the first part of next year before we’d start cash flowing on those offices. And the owner understood the concept, but he always kind of squeaked a little bit when he was funding those eight new offices. And then he was fine when it ramped up again. And hey, it’s time to open up eight more offices, okay. But remember, it’s going to cost us in the short run to pay off in the long run.

Tom (00:15:42) – Yeah. Sounds like he was always in that. As soon as he made it, got above that hump, he invested in more. Which sounds smart, but it does mean your cash is tied up that whole time, right?

Terrell (00:15:54) – Yeah. And I think that those are the factors that, you know, that just don’t naturally come to mind because for some reason people forget about that investment period of like, Hey, you start a new business, you start a new office, you’re not going to be like rolling the money right away. Like there is an upfront cash outflow that’s going to happen. Then, there’s going to be a period of payback before you start actually getting into like, Hey, we’re making more money than we had to put in upfront. And I think a lot of times people are assuming that, hey, well, once I do this, I’ll be making a lot of money. Like, no, there is that payback period that you’re going to have to navigate. And that’s why I think, you know, um, you know, to what John was saying is that when you really lay it out and you look at it that way, you can understand it. Now, one of the other things that we’ve seen also with firms that are wanting to expand with different locations, and this is an area that is a focus for us.

Terrell (00:16:54) – Like we don’t do tax work. But even just the tax implications of, well, if you’re running a firm in Florida and you want to open offices in California, do recognize that changes the tax implications for the partners, not just the people who sit in that office, but the partners who own the firm. And I think that’s where I often tell people. It’s like as we kind of lay out, like, hey, here’s how many cases you’re going to need. Now, when you start looking at things like location or where those new offices are going to be, it’s like, hey, you need to bring your tax professional in on this conversation because this isn’t just a, you know, a forecasting kind of operational decision. There are going to be some tax implications you need to think about.

John (00:17:41) – Couldn’t agree more. And there are certain states you should just stay out of Terrell.

Tom (00:17:47) – You can start state bashing now, John.

John (00:17:50) – I won’t name any. You might have named one of them, but.

Tom (00:17:53) – Yeah, that’s funny. So, I’m guessing well, I’m hoping you do a fair amount of forecasting with people because I would think if I am a lawyer who understands my forecast and you’re saying when we grow, you should generate about this amount of cash. I already see maybe that it’s not a huge amount of money coming into my pocket. So, then if you’re then walking along beside me and saying, we’re on target and we have what I said I would have, I probably feel more comfortable understanding that and didn’t have in my dream that at the end of that I got to buy the huge house one year later and suddenly you’re the guy who’s saying, no, you don’t get to. You don’t get to do that.

Terrell (00:18:28) – Absolutely. You know, I always tell people that, you know, money is very, there are a lot of emotions tied into money. Now, if you don’t have a good forecast or kind of a good roadmap of what to expect about this journey you’re about to go into, your emotions are going to be all over the place because you know you’re going to be working really, really hard and you’re not going to see a lot of the cash just pouring in up front.

Terrell (00:18:55) – But I think if you do have a good forecast or a good roadmap, like I say, it gives you something to kind of compare like, okay, yes, we are on track. It may not feel like we are, you know, amazingly successful, but we’re on track with the plan that we’re doing. And then eventually you get to a point where your feelings catch up with the reality of the plan that you’re actually walking out. And so, yeah, I totally agree. Like that plan has to be clear enough to them so that they can actually use that. As, you know, the road signs as they’re kind of going down that journey. Yeah.

John (00:19:35) – You know, sorry, Tom. That’s what’s so great about it. The tools we have today to do that forecasting. If you think about it, when our grandfather took a vacation, he pulled out the road atlas and put it on the kitchen table and said, okay, this is the route we’re going to take. He didn’t know about debris in the road and accidents and construction.

John (00:19:55) – And then we graduated from what our parents used, triple Triptychs, which was a map you could take and they would stamp, hey, there’s construction around Atlanta. So, here’s a possible detour. Today we have the Waze app, which in real time tells you, hey, 0.2 miles, there’s debris in the roadway. And then I ask you, is it still there? So, we have all this instant information, and we have the same tools. This equates to accounting. Accountants were historical in nature. They told you what happened. And then we got a little bit better with computers, and we could automate things and be a little quicker. Today, we can be almost real time, and those forecasts can be even better. So, I think of a forecast as a road map to a destination and the quicker and more accurate you are and more frequently you look at it, you can make those course corrections to get to that destination and get the client where they want to be knowing all the information. And the important thing, Terrell, as you said earlier, is telling that story in a way they understand it.

Terrell (00:20:58) – Yeah, yeah, absolutely. I totally agree.

Tom (00:21:01) – That’s a great point, John. And the benefit you have with some of the forecasting tool now is maybe the trip analogy works or not, but you can plug in different parameters and say what would happen and maybe it’s a trip, you know, if I drove a different speed or if I stopped this many times or something. But the same, you’re building this law firm. Okay. What if you fall short of your cases and still hire the people? And that’s easy to plug into a forecast.

Terrell (00:21:30) – Absolutely.

Tom (00:21:32) – Sorry. Go ahead, Terrell.

Terrell (00:21:33) – I was going to say. Yeah, because, I mean, there are so many factors that can change that forecast and just influence like, you know, the journey that you’re on. Like you said, you know, whether it’s, hey, an associate leaves the firm or let’s say a paralegal, you know, leaves a firm or something like that, like your, you know, your projection on revenue then changes or your projection or cost changes.

Terrell (00:22:00) – And it’s just like those different factors. And I do think, you know, being able to use tools that do allow you to kind of update, you know, or get more real time updates are extremely helpful. I mean, because even as John was talking, I was thinking back to when I started driving, I think it was around the time where MapQuest was a big thing, where it’s just like it gave you directions printed out on paper. But if anything changed in that journey, it’s just like those instructions were not always the most useful when there was a detour.

Tom (00:22:34) – Right. Yeah. If you get lost and don’t know where you are in the directions, it’s not very valuable. Right?

John (00:22:40) – As you were driving down the highway trying to look at the MapQuest, or maybe your navigator was like, I don’t understand, but you’re going 65 miles an hour down the highway. Oops. Missed that turn. Got to kind of head back and trail. You’re right. When things change in a law firm, especially if a partner or staff leave, they can take cases with them.

John (00:22:59) – There’s no non-compete in law firms. So, you’re going to have to readjust that forecast based on circumstances as they come up.

Tom (00:23:07) – Interesting. So, tools. Terrell, what do you like when it comes to forecasting and other things? Are you using commercial tools or using home built things? What do you do for forecast?

Terrell (00:23:18) – So we’ve been using a lot of home built things because when we’ve been looking at forecasts, a lot of the clients that we’ve been working with on forecasts like they’re the variables that they’re looking at are kind of all over the place, or they’re trying, they’re either in the midst of a change. We’re like, Hey, we’re transitioning from an hourly billing to flat fee billing. It’s just like, all right, we need a tool now that have cases that are mixed between the two. I haven’t found a tool that will accommodate both. So, we end up building out, you know, some, you know, something from the ground up using some type of spreadsheets. And one of the common things we do with a lot of our forecasts is we tend to build out a drivers tab.

Terrell (00:24:04) – That way we can toggle back and forth whether it’s, you know, best case scenario, worst case or scenario one, 2 or 3 to where we can kind of toggle through those different versions. And then as they get a little bit more clarity on some of those variables, then we can say, all right, you know, what kind of tools can we look at now, now that we have a bit more clarity over all these wild variables that can go any direction?

Tom (00:24:34) – Yeah, that makes a lot of sense. We do similar, and for at least the ones that we build, the simpler you can make it so the client can see it. Our most successful forecast calls are when the screen is showing the forecast and they’re saying, What if I did this? What if I did that? And as you get done, it’s good for two things. I don’t have a takeaway to say. Let me go work on the forecast and get it back to you. And you remember because you are part of it.

Tom (00:24:58) – So when we come back next month and say, hey, we were a little bit off on a forecast, hopefully the client is feeling, I was part of that forecast. I told you to put in 5000 for travel next month and when it came in at 10,000. Okay, I know I’m over that. Wasn’t just you guessing on that. John, I’m curious. Was your side the more you can do? Yeah, go ahead.

Terrell (00:25:16) – I would say the more you can do that, the better, because I say it takes me back to my days of working in corporate where, you know, you have a meeting, you discuss the forecast or changes need to happen in the forecast. The forecast wasn’t designed in a way that you can update it in the meeting and then when you send it back and you have to do variance analysis, people are like, well, this isn’t what I signed up for. And as you get all of this back and forth, yes.

Tom (00:25:44) – It’s a lot of extra. And you’re already busy. You didn’t want to walk out with more things on your to do list.

John (00:25:51) – If you, if they participate in the tweaking of that forecast, they have bought into it. And additionally, you don’t have a project that you have to go back and do and that’s what traditional accounting does. I mean you say, Hey, that’s a great question. Let me let me get back to you. And then a week later, you’re like, what was I supposed to do? Oh, I got to do this and get back to them. It just drags things out.

Tom (00:26:14) – Yeah, I agree. Yeah. Hey, if we focus on niches for a second, do you have in your mind the size of firm that is a perfect target market?

Terrell (00:26:30) – Yeah. So for us, yeah. So for us, we’ve been seeing, you know, since we focus on bookkeeping and CFO work, we’ve been seeing between 1.5 million to about 5 million in revenue.

Terrell (00:26:44) – And a lot of that is just because some of the, you know, the challenges that they’re trying to navigate in that phase are things where like they’re trying to increase their staff or, you know, maybe they’re, you know, reassessing, you know, introducing flat fee billing on certain types of cases. And those are the types of things that we’ve kind of seen. And they’re getting used to like, hey, how do I monitor productivity utilization of my team? It’s like those are new things that they’re getting into, and we’ve kind of really developed a good rhythm about whether it’s, you know, creating, you know, regular reporting like some of our law firms. What we do is we’re sending out, you know, weekly updates to their team about like, hey, here’s a scorecard. And we’re sending to their staff members. So their staff members are staying on track on where they need to be so the firm can hit their goals. And so that one and a half to about 5 million is kind of where we’ve been really seeing a lot of growth lately.

Tom (00:27:46) – Okay. I’m curious and John, I’ll ask you the question then about how many people is in a firm of one and a half to 5 million? What’s that kind of general range?

Terrell (00:27:56) – Yeah. So, on the one and a half, what we’re usually seeing is you’re probably going to have the senior partner and an associate, and then you’re going to have about maybe there’s what, maybe three between paralegal, legal assistant, and maybe there’s a, you know, an admin person kind of at that one and a half to two. And then as it starts to grow, you’re going to add more attorneys and more on the legal staff.

Tom (00:28:24) – Okay, John, how about you? What about from a niche target?

John (00:28:28) – Well, our focus has been mainly 2 to 30 attorneys, and that would equate to a million and a half, up to maybe 20 to 25 million in revenue. I was just looking at the most recent Ala survey, and the survey said three out of four accounting firms that are I’m sorry, law firms that responded are open to outsourcing some non-legal function of their business.

John (00:28:55) – And the biggest ones are IT and HR. But accounting was in there and 15% of respondents either are or are open to outsourcing their accounting. And I was a little surprised by the spread. 0 to 4 million in revenue was by far the biggest one. It was 31% of the respondents, but over 20 million still had 15% of the respondents. And I think, though, once you get beyond 25 or 30 million or 30 attorneys, you have enough girth to have a CFO in-house or a finance department, and you can support that non-revenue producing overhead in-house. 

Tom (00:29:37) – Yeah. Yeah, that makes sense. Sounds similar to what we find with agencies away from law firms. Similar story.

John (00:29:44) – You know, I still think you can bring value to those firms that have in-house talent in that they can focus on different things and you can bring them, you can pull the data out, put the KPIs together, and then help them make better decisions. 

Tom (00:30:00) – Yeah. Yeah. I could see the value that you guys would bring.

Tom (00:30:04) – The two of you working with multiple firms in solving problems and then bringing them back to the other firms that you work with is really valuable. And I often think of that person who’s sitting there, especially if they grew up within the company. They don’t know some of the kind of key metrics that you’ve been able to pull out and look at. I know going to conferences and things can give some help for that, but my guess is some of the new firms you work with where you can say, Hey, there are these 3 or 4 ways that you really should do it that they’re probably saying, That’s great. We had tried to figure that out and here comes someone who says, just do it this way and we’ll follow what they’re telling me.

Terrell (00:30:36) – Yeah, I mean, there’s a lot of value in that experience or, you know, that first hand kind of exposure to it. And as you said, I mean, you know, individually, you know, one firm may not go through as many drastic, you know, changes and let’s say their structure or their pricing or, you know, maybe even their incentive structure.

Terrell (00:30:58) – But if you’re, you know, kind of like John and myself, where we work with multiple firms, it’s like we’ve seen it from looking at the combination of all the firms we’ve worked with. So it’s like we have, you know, first hand exposure to a lot of the things that many firms may only see once or twice in their, you know, their lifespan or their career span. So, yeah, I agree with you. I think there is a lot of value even if you do have someone in-house leveraging that outside resource, because they’re working with so many different firms and so many different clients, their exposure is a little bit wider typically than the person who’s in-house.

Tom (00:31:41) – Yeah, yeah, I’ve jokingly said. But it’s come true to the times where I’ve done something once and then suddenly you can act like an expert. But early on when I started doing this, people would say, Do you know anything about like, phantom stock and things like that? And so I went through and helped a company get one done and had no idea.

Tom (00:31:57) – Within like a month someone else said, Hey, have you ever and all of a sudden I’m like, oh, yeah, all the time I’ve done this. But it’s surprising how often one client will say, Can you help me with this problem? And then within weeks 2 or 3 others are asking the same kind of thing. And so, I think that expertise really can help a lot.

Terrell (00:32:16) – I totally agree.

John (00:32:18) – You know, that’s the beauty of public accounting, at least for me, is growing up in public accounting, there’s ten different ways to do something on a balance sheet or income statement. But if you work in a company and you grew up there, there’s that company’s way to do it. So, when you then work with that company, you’re like, hey, there are alternatives here. And it just blows their mind because they grew up. I used to work with a lot of people at AB Anheuser-Busch and there was the A, B way to do things. But of course, there’s ten different ways to do the same thing.

Tom (00:32:50) – Sure.

Terrell (00:32:52) – If we think that’s becoming more important right now because so many businesses are recognizing that, hey, we got to adjust our model or we have to adjust our approach or it’s like, hey, our customer base is asking for something a little different. And I think as businesses are trying to navigate it, leverage going back to, well, this is the way we do it and it’s just like, well, if your client base has changed and their appetite has changed and how they want to do business with your company has changed, you need some fresher ideas. And I think that is a great time to pull in someone who has had exposure to so many different companies because what they can do is they can tell you, hey, I’ve seen this at this company, they did this or, hey, I saw this at this company and here’s what they did and here’s where it worked well, or here’s what made it not work so well. So make sure you avoid that kind of pitfall and things like that.

Terrell (00:33:49) – Yeah.

Tom (00:33:50) – We found when we start working with new clients on the onboarding is a great time to change things that maybe they’ve tried a bunch of times and it’s failed. And I’ll give you an example where we streamline and often you’re like, no, you should really like batch things and pay your invoices once a week. And here’s why. And many of them will do that in internally. People say, I’ve been trying to do that for a long time, and we start working with one client who is telling us how difficult their customer invoices were to put out, which seems like a strange thing. They were a design firm and one of the partners wanted their invoices to look better than anyone else’s, and they actually designed them in an art program. And I immediately said, we are not going to do that. And they’re like, you’re going to have to go talk to Graham because he is not going to accept that. And so, we did a quick pricing thing, but said, Graham, they can look good and here’s what you can do in this tool.

Tom (00:34:37) – But come on, do you really care? Your clients you work with don’t even really see your invoice. It’s the bookkeeper. But they said for years we’ve been trying that. And it was a very selfish thing I was doing. Like, I’m not having my team spend hours artistically doing invoices. They’ll kill me. But there are things you can change easily. As an outsider walking in.

Terrell (00:34:57) – I wonder what the collection rates were on his unique invoices.

Tom (00:35:03) – That’s like, oh, I wish I would have had you. I wish I could have said, they’re paying you slower. And I envision them. They’re framing them. They’re not paying them because they’re putting them on a wall. Oh.

John (00:35:16) – Hey, Terrell. I’m wondering if you see this. So professional service firms let their partners approve the bills. They may not draft them, and they might come write another time and billing system. But billing practices amongst partners, some are great, some are horrendous. And that’s the biggest way you can help them improve is to say we have to bill on a regular cadence where I have some law firms that still to this day have older partners who bill twice a year.

John (00:35:42) – And it’s just insane to me that we would do the work, pay for the people that did the work, and then wait six months for somebody to send a bill out. I mean, I always equate it to you get your car fixed, and you pay for it, and you pick it up. It’s a hotel bill. Whereas if they let you take your car in six months later, you’re driving, that car is great. And then they send you a bill, you’re like, there’s no leverage for me to pay for that. Now, lawyers do end up getting paid, but boy, some of the billing practices in accounting and law firms is just not good.

Terrell (00:36:17) – Yeah, no, I totally agree because there have been a couple of clients where, you know, we’ve taken a couple different approaches where we’ve seen that where one client where they weren’t getting the billing done in a timely fashion to where it’s just like, all right, so here’s what we created a weekly report that says, hey, here’s the work that you’ve done.

Terrell (00:36:37) – So here’s the money you’ve earned, here’s the money you actually collected. And once they saw that number keep growing and they were like, oh my gosh, there’s like $300,000 out there. I’m like, yeah. And then on other clients, what we did is we said, okay, all right. For every 30 days you delay, it’s going to reduce the percent you can collect. So, the longer this stays outstanding, the less money we’re going to probably actually collect. And I think for them, it’s just like in their mind, they just started seeing like, man, the longer this goes, the more money that I’m missing out on. And I think seeing it having to come up with creative ways to help them understand. Like, guys, this is a problem. Um, it really helped them, you know, start to be able to see and recognize like, hey, the longer I delay on this or the longer I delay getting a better billing process, the worse it’s impacting my financial position and ultimately, like your cash flow.

Terrell (00:37:39) – So, which is going to affect how you show up, and how you run the firm.

Tom (00:37:44) – It sounds like very, very valuable advice from you guys to do that and can see in a forecast. John, you well, both of you are already talking about sort of the cash strapped firms, especially the ones that are growing. If you add on top of that, that your billing practices are bad, it would seem like you’d say if you could adjust this, it’s not as cash strapped for you to do that or your point about just not getting paid at all. It seems like that would be really impactful. So now you’re working for free or at a discount from what you thought just because you’re building practice.

Terrell (00:38:13) – Yeah. And I think a lot of it is because, you know, I’ve gone to several different law firm conferences now, and a lot of times I hear when they’re talking about the finance section, it’s just they’re talking about it in terms of revenue. And I’m just like, okay, all right.

Terrell (00:38:31) – You’re talking about money that they’ve earned or you’re talking about what their billable revenue looks like. But if you are not collecting it, it’s like it doesn’t matter. I mean, outside or on paper, it doesn’t matter, you know, what your billable revenue is if we’re not collecting it. And I’ve noticed like with having that conversation with some law firms where, you know, they’ve gone through whether it’s coaching programs or they’ve gone through business development programs where all the attention is on billable revenue. And I’m like, you know, that may have felt a little more comfortable when you were an attorney at somebody else’s firm because you were still going to get your money, whether they collected it or not. But when it’ss your firm and you’re the one that has to pay everybody, you want to make sure you collect? 

Tom (00:39:26) – Yeah.

John (00:39:27) – You can eat, and you can eat work in progress. So yeah.

Tom (00:39:33) – So right before we started our podcast, we talked a little bit about networking, and I think you got some kind of unique ideas around networking.

Tom (00:39:40) – Do you want to talk about that just a little bit and we can spend some time there.

Terrell (00:39:44) – Yeah. So, we started our firm back in April of 2020, um, which, you know, probably not the greatest time to start a firm. Um, I will say if you wanted to be absolutely creative, it was a great time to start a firm because prior to, like leaving my corporate career, I’d met with a couple of CPA and fractional CFO firms, and I had some conversations. How did they go about, you know, doing business development? Because I’m like, that’s not something accounting trains you for. So, I’m like, let me get a little bit of context before I just launch out into this. Well, all the advice they gave me was not applicable come April 2020. So, I was like, all right, how am I going to meet people? And so, one of the first things we started was a podcast, and I started more so from a networking and just really understanding the market and demand.

Terrell (00:40:40) – So, we started a podcast, and I just started interviewing other business owners and just talking about like, hey, what are you doing? What’s concerning you now? What’s on your mind? You know, what are some of the ideas that you’re doing or some of the ways that you’re trying to address those things? And so after about, you know, you know, I think within what the first eight months I did about what, 300 interviews and really just doing a lot of data researching that ended up leading to finding more creative ways of like using social media to network where I would see all these people that I’ve had on my show where they would post content, and I would read the content, and then I’d leave a comment and other people would see it and reach out like, hey, I really like what you said on that. And then what I would do is start going through comments on different people’s posts and I would say, okay, all right, this looks like a really good question.

Terrell (00:41:40) – And then I would create a video talking about that question from a finance perspective, and more people would start finding us and being like, hey, I really like what you said. Like, man, I was just asking that question the other day and I’m like, I know I read your comment and so like, doing things like that really helped us kind of, you know, really take a different approach to kind of networking. And also it’s just, you know, you start meeting other accounting and finance professionals because I’m like, you know, those are great people to learn from as well. It’s like although like, say we have a firm as well. But you know, it’s great to kind of learn from them. I think, you know, how John and I got connected is you know, I the American Bar Association reached out to me to help with, you know, generating finance content. And I’m like, well, I don’t focus on tax plus. I don’t know everything about law firms.

Terrell (00:42:40) – And so that’s how I got connected to John about, Hey, they’re right, they want to write this article. Hey, it’d be a great opportunity for you to share your expertise and promote the firm. And so, I think it’s just using creative ways like that that really helped me meet people that I probably would have never had the opportunity to meet.

John (00:43:00) – You know, I think that’s our philosophy as well as creating content, putting it out there and really having clients who are self selecting to come to us rather than the old networking that professional service firms did, where you go to lunches with different people that you know, especially when you’re younger people that are in executive positions, they are not a decision maker yet, but you stay in touch with them and then at some point they become a decision maker. And that works for a lot of lawyers and accountants, but it’s not what we’re trying to do. And I don’t think that’s what the profession will be like. Ten years from now, I think it’ll be more like what we’re doing and what you’re doing tomorrow.

Tom (00:43:40) – Yeah.

Terrell (00:43:41) – And I think when you’re developing a, you know, a niche practice, I mean, I think it’s great being able to put out there like, hey, here’s the audience that I’m trying to connect with. Because when I think about like some of the advice that I was given and had done this before, you know, just kind of navigating through my career is like, you go to these events hoping that you meet someone that would be a relevant contact. And I’m like, well, when you’re running a business, it’s like you’re trying to maximize the use of your time and your dollars. Where I’m like, I don’t want to spend all this money going to events that may not have anybody that’s relevant to, you know, where I’m trying to grow in my business where like, they may be great people and, you know, maybe great friendships. But if I’m really trying to be strategic about, you know, growing in a certain area of my business, I had to find a way to become more precise about that. And I think the content to what John said became a great low-cost way to do that.

Tom (00:44:45) – Yeah. I also like your approach, that meeting people, learning from them and some of that is just the goal as opposed to I’m meeting people to instantly have this connection as sort of a transaction. And I think that’s one of the things that turns off a lot of people feeling like, I’m going to be in this room of people I don’t know, and I’m supposed to walk around and shake hands and then they make this contact. And many people don’t want to do that. But I believe you have found in addition to clients and prospects, you’ve also found people to work with and people working for you through this networking approach.

Terrell (00:45:21) – Yeah. So, one of the things you have to figure out in your firm is managing cash flow and capacity.

Terrell (00:45:30) – And because, you know, we didn’t have a ton of money to just be like, okay, are we going to hire a bunch of people? I wasn’t that fortunate to be able to do that. Um, and so we had to find creative ways. And so, one of the podcasts that I was doing, it was a, I had an accountant on and he was talking about, you know, how he was using teams in the Philippines to increase his capacity. And so, he hired a couple of people and, you know, off camera after the interview, you know, he told you know, it came out in conversation that, you know, he had some more capacity. And I was like, well, I have work. Um, can we like structure an arrangement, like a subcontract arrangement where, you know, I started working with members on his team and we ended up having like, you know, you know, sending so much work to his business to where it’s like there are two people on his team that are dedicated to supporting my firm just because we continue growing that way.

Terrell (00:46:29) – And so now, you know, for me, it gave us a chance to surge on capacity where if we have a month where we’re onboarding, you know, more clients than we can handle internally. And I’m like, okay, I’m not going to be able to hire someone, get them up to speed, to be able to support that. I’ll reach out to them and say, hey, how much capacity do you guys have? Here’s the arrangement. And recently we went through, and I told him like, Hey, here’s what’s on our sales pipeline. Here are the deals that I’m working on. And he went back and said that, hey, you know what? You know, he’ll shift some stuff on his team to free up another person to support some of that because I’m like, there’s no way in the world that I’m going to be able to absorb this with my internal team. So, I think, you know, using the content as a way of, you know, finding people that you were like minded with and finding people that you can develop strategic partnerships with, I think was something that I didn’t expect going in.

Terrell (00:47:29) – But it has been a huge benefit.

Tom (00:47:33) – Yeah, I like the open way, the open-minded way. You went into conversations, I could see limiting yourself and it would be easy to do that. I think what I can get out of this is maybe referral business and grow something on the client side, and you could totally miss that opportunity that could be there. And as you’ve described in becoming a thought leader, some of it’s the long play. It’s not every conversation turns into that immediate kind of transaction that you have. Yeah, that’s impressive.

Terrell (00:47:56) – Absolutely. And I think there’s having that patience for it. I mean, it was one of the things that, you know, I heard some people say, I must have heard it in like a Ted talk, just the patience to see things through. And I think that, you know, when you look at, you know, networking, I would say, is the people who tend to have a short patience tend to be the worst networkers because I’m like, those are the people who when I look at my inbox on LinkedIn, there’s a sales pitch in the second sentence of every message is like, hi, Terrell, I was really impressed by your profile.

Terrell (00:48:43) – Here’s what I want to sell you. And I’m just like, there is no patience here. I’m like, we just met. Or actually we haven’t really met. You just threw your name out, and now you want to throw your services at me. And I think it’s helped me also become better on the sales and business development side because now that we’ve kind of, you know, we’ve gone through the process of adding more people on our team where we have bookkeepers and senior accountants to where I can spend a lot more time on business development and just understanding that, you know, there are some people that are clients now that we met maybe a year ago to where it’s like, Hey, that sales cycle just took some time of nurturing. And, you know, the good thing is, like I said, we’ve just developed such a consistent pattern of networking and genuinely meeting people to where, you know, we’re not pressed about like, oh man, we got to convert this like next month. It’s like we have enough people we’ve been talking to and developing relationships.

Terrell (00:49:45) – We’ve been putting out content consistently to where we can afford to be patient or continue to be patient about developing those relationships and adding value along the way. And I think it was just having that long, longer term perspective about it. 

Tom (00:50:04) – Yeah. I love that you’re reinforcing that and the consistency. When we coach other firms, it’s very common to say, no, I know I should be putting out some stuff, but I won’t. And when I get through this season and what will often tell them is it’s not going to be helpful if you find like if in November you’re not that busy and you put out a bunch of content every single day and then disappear for six months and do it again, that consistency becomes really important to keep doing that part of your long play and just carving off a little bit of time and sometimes figuring out how can I assume you’re in a mode now where you can put out content fairly easily without spending a ton of time on everything because you’ve got some things figured out for how you do that.

John (00:50:41) – Hey, Tom, I just laughed a little bit because you talked about doing all the content in one day, and Kelly, who’s in our marketing department, showed me a TikTok of a business consultant. And what he had to say was great, but there were like five TikToks in a row where he was wearing the exact same clothing. And then there were another five where he had the same outfit on. I’m like, He did this in two days.

Tom (00:51:05) – Oh, that’s great. Yes, that’s funny.

Terrell (00:51:09) – We definitely do that. Do that a lot. I mean, of just a really batching content and like, you know, person like outside of the firm personally, like one of the things that I, you know, am working on, it’s just, you know, it’s health wise. It’s just, you know, getting out, walking more, getting some fresh air. And like I recently set a goal that I want to hike a 14 next year. So it’s like doing a lot more walking to where I’m like, well, while I’m not walking, let me film some very quick videos to where it’s like getting in the habit of doing it on a regular basis to where then like I have a marketing VA that we can send it to like, Hey, here are the videos I did over the last week or whatever.

Terrell (00:51:52) – You can kind of, you know, mix up the timing. So I’m not wearing the same shirt back to back.

Tom (00:51:59) – That’s great. Have you picked a 14 in your time?

Terrell (00:52:04) – I haven’t picked one specifically. I’ve been looking at this Gary and Tory, because, you know, they’re right next to each other to where there is a path to where you can hike up Gary and then walk over to Tory so you can get like two peaks in one trip. Um, so I’ve been looking at some of those, and I think like I’ve kind of given it a, I say more like right now focusing on like, all right, I got to really get my leg endurance up. Um, so it is like back in the gym with my trainer, um, like, hey, let’s change up the workout plan. And um, I will say yesterday I think we were doing, I think like 150 squats. And I was like, why did I set this goal?

Tom (00:52:55) – Yep.

Tom (00:52:57) – Are those Colorado peaks that you’re naming those two?

Terrell (00:53:00) – Those are in Colorado, yeah. So? So those are like maybe about 45 minutes outside of Denver. 

Tom (00:53:06) – Okay. I have a son who lives in Denver, he interned out there and climbed a bunch. And I’ve done, I think, three with him. And it’s a cool goal. I think there’s 5058 fourteeners in Colorado and so many people try to do some, but that’s cool that you’re doing it. It’s hard. The altitude I found amazing and I had to teach or had to learn for myself that early on. When I’m breathing that hard, it doesn’t usually. Usually that means I’m getting really tired. This means there’s not oxygen, and you just get used to it. And so, you’re five minutes in and panting like you’re hyperventilating, and it’ll calm down. You get used to it, but it’s a different feeling. That’s cool.

Terrell (00:53:40) – And for me, it’s one of those things I think, that reinforces kind of that lesson of patience of just like, hey, you’re not going to get ready for this in like overnight.

Terrell (00:53:50) – Like this is going to take, you know, again, consistency and really kind of laying out a plan. And for me, it’s like it’s one of those things that relates to the same advice that we give clients as CFOs of just like, hey, we’re going to lay out a plan. And then we got to consistently execute through this plan. And over time, like there’s some things, some metrics you can check on just to see if you’re making progress. But, you know, for me, it was one of those things where I’m like, hey, this is a big enough goal to where it’s going to force me to really develop that patience and consistency in another area of life.

Tom (00:54:28) – Yeah.

John (00:54:29) – How do your legs feel today after all those squats?

Tom (00:54:34) – He is sitting down. Does that partially answer?

Terrell (00:54:37) – You know, I have a standing desk, but I’m just like, yeah, that’s not happening today.

Tom (00:54:42) – I worked out yesterday. That’s great. I love that you said that.

Tom (00:54:47) – I think we’ll wrap up here in just a second. But that feels like such a good analogy of the goal that you set. If you had a forecast and you’re tracking metrics along the way, it’s such a good way that you could lead a client through things with some of the same kind of thing, metrics and everything else. And I assume at some point you said it’s going to be hard. So today you’re not being able to stay on. Maybe you’re thinking back going, okay, I said it was going to be hard. I like that you questioned should I be doing this? Because there’s 5,000 foot peaks in North Carolina. Right. Maybe you should have settled on that.

Terrell (00:55:15) – Yeah, it’s definitely one of those ones that really I’m like, you know what? I set the goal, and I made it public. So I’m just like, All right. I knew that there would be a point where I would question this, but if I make it public now, I’m like, okay, all right.

Terrell (00:55:29) – I got to follow through now because I’ve already made it public. Um, so I’m just like, you know what? And I think that, like I said, that same analogy to, you know what I compare, you know, business owners who hire, you know, CFOs, it’s like, hey, once we work on that plan together, it’s like, hey, as your CFO or your fractional CFO, I know your plan, so now I can help hold you accountable because like you said, there will be some pain for some uncomfortable parts of this journey. But I think having that sense of accountability I think helps you stay, you know, consistent with that plan as you’re kind of working that journey out.

Tom (00:56:06) – I think that’s a great place for us to stop. I feel like we could go on forever. Thank you very much. This has been really helpful. I think we got through some really good topics and really enjoyed the conversation.

Terrell (00:56:19) – Well, thanks for having me.

Tom (00:56:20) – Thanks very much.

Outro (00:56:22) – Enjoy this podcast. Visit our website SummitCPA.Net to get more tips and strategy for achieving modern CPA firm success. We are here to be a resource in this ever-changing industry.

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