The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 71 - Why You Need a CFO w/ Patty Lawrence
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In this episode of the Progress CPA podcast, we understand entrepreneurs' challenges when making sense of their financial numbers, profit margins, and investment returns. Whether you're running a business with a small team or managing a more extensive operation, understanding your financials is critical to making informed decisions. Patty Lawrence, a seasoned CFO, joins us and shares insights on the importance of having a solid financial team, the difference between bookkeepers and CFOs, and when it’s time to level up your operations. If you want to make better financial decisions, this episode is for you. Tune in to discover strategies for managing your finances, avoiding costly mistakes, and maximizing your business potential.
To learn more about Patty Lawrence and her offerings, go to:https://turboexecs.com/
Welcome to the Mark Probrick CPA Podcast. And now a lot of you guys here are going to and a lot of our clients have struggles making sense of the numbers and the books and how much should I set aside to invest, how much am I getting as, what's my profit margins or what's the result?
Speaker 1:of deploying my cash into this thing versus that thing. How do I make sense of all these numbers and money coming in and out of my books, or are my books even reliable? And what do I do with this information and all the activities going on around my company? Because you guys are entrepreneurs and when it started off and you had an Excel sheet as a template, operating out of your bedroom, maybe it was a little easier. But now that you have a staff of either three, five or 20, or 30, or 40 people, it's not that easy anymore to make sense of all this stuff. So understanding your numbers is crucial to making key decisions and evaluating the effectiveness of those decisions. That's why I'm really grateful to have Patty here today. Patty Lawrence, she's going to introduce herself, talk about what she does, and we're going to talk about what you can do and what CFOs do to help make these decisions and make sense of all this stuff going on. Patty, thanks so much for joining me. Can you introduce yourself in 60 seconds or less?
Speaker 2:Absolutely, mark. Thanks so much for having me. So I'm Patty Lawrence. I'm a founder and consulting CFO at TurboExecs, where we provide outsourced accounting accounting department and fractional CFO services to small and mid-sized companies.
Speaker 1:accounting department and fractional CFO services to small and mid-sized companies Awesome. So now a lot of our folks know they've hired bookkeepers before and they're like, well, my bookkeeper does my books, so why do I need to talk to someone like you and we say, hey, you guys, how many bookkeepers have you fired by, by the way? Right, so can you tell the audience here what the difference is between just hiring a bookkeeper who reconciles the reports and what you guys do?
Speaker 2:Absolutely so. Bookkeepers if you think about what bookkeepers do, their training is kind of minimal and maybe just on the OJT, on the job training. Maybe they learned it learned bookkeeping from doing QuickBooks, which, by the way, is not accounting. So so what we like to say is we are, we are all degreed accountants Every person in my group has a degree. So what we are doing is more than checkbook accounting. So I liken bookkeeping to checkbook accounting. So checkbook accounting is cash in, cash out and that's all it is.
Speaker 2:But accounting is, as you all know. Being a trained accountant, you know that bookkeeping and accounting aren't the same. So accounting is looking at things like revenue recognition, looking at things for when do you create a liability? When do you have an expense in your business? What is your cash flow? What is your gross margin from product or service sales? What is, you know, a profit by customer, what? What are those things? Because those are going to reveal the story behind the numbers. That's what we like to say. In our business. We function, we we focus on operational financial management, which is all internal to the company. We don't do anything with compliance, which is kind of tax and audit. We leave that for the outside CPA firms to take care of all of that kind of like. You do you focus on the tax aspects of it? Maybe not so much the audit aspects of it, but we are very focused on making, ensuring and helping guide our clients to so that they can make data-driven decisions and make as much money as possible within their business.
Speaker 1:Wonderful. Now before we a thought. I just had a thought as you were going through this and I want to make a very crucial point here. That we've seen a lot of people mess up is that it is incredibly hard to find good accountants. And accountants I mean people not tax accountants or auditors. I'm talking about people that are doing journal entries and reconciling your books and giving you reliable figures here, because we see a lot of people starting off looking to cut costs, and this is not an area where you just go online and you find someone who says they're QBO certified and then you assume that they got everything figured out because you can gain that certification very easily here and if you just go for like the little guy who pops up on your screen in QBO, you may be disappointed to find that that guy, even with a certification, doesn't know what he's doing. Or they may not know your industry or the nuances of things like inventory tracking and multiple part properties. So you know reconcilings with loans. So you really want to be careful, just like with your tax advisor or anything else.
Speaker 1:This is a hard professional skill and most people are not designed or capable of doing it. It's not like you're just hiring someone to roll up a burrito when you run a Chipotle restaurant. This is a specialized skill set and most people are capable of doing it. So, you know, really put some due diligence and thought and make a. You really want to make sure you make a good decision on this because you know we've tried to do it and we've realized how scarce it is to find reliable people to do this service. I tried to do bookkeeping at our firm and I lost hundreds of thousands of dollars trying and failing and we just said we're going to source it out to people like Patty. So you know, just be very careful and if you have someone good, hold on to them for dear life, treat them well. And my cats I meant to get them out of this room and they keep on going behind my computer.
Speaker 2:So we're going to be a little distracted potentially, but anyways, so let's so.
Speaker 1:And so now let's get into how. How can? What's the difference here between what the impact and what a bookkeeper does and what the CFO is doing here?
Speaker 2:I love that question so I like to look at it as a team. It's a team effort. So when you have a bookkeeper, your bookkeeper is or accountant, so your staff accountant is doing the transactbook stuff. But hey, if you acquire some big fixed asset, so if you have a manufacturing company, you acquire something, or a car or a property, some real estate, they have to make sure that those items are getting recorded properly on the books, right? So that's transaction stuff, credit card purchases, all that stuff, making sure that it's not just one big lump sum entry. When you pay your credit card bill, say you pay $5,000 for the month for the credit card bill, well, that's a variety of different transactions. So some of it can be office supply, some of it can be travel, all of that stuff, right, all the things. It's not just $5,000 that goes to the Capital One account or the M&T bank account. That's not how it works. So it's a little bit more sophisticated than that.
Speaker 2:Then you step up into maybe an accounting manager where they're managing maybe accounts payable and accounts receivable. So paying the bills and generating the invoices, especially if you're a company, that you're invoicing is, let's say, a little more technical. So it requires a lot of grabbing different things. Maybe you're billing expenses plus time, plus material. You're having to grab a whole lot of things and put that into an invoice. Or you have different price lists for different customers, so there's a lot to it. So there's accounting manager and then you have controller, where they're looking at compliance, they're looking at some payroll, maybe they're looking at budgeting, they're looking at some things that maybe your accounting manager is not doing on a day-to-day basis, but kind of leveled up from that A little bit more, a lot more experience and a lot more interface with, let's say, the owner or the leadership team whoever that is to make sure they're getting the data that they need in a format that makes sense To your point.
Speaker 2:You could just be getting reports and not know anything. It's not telling you anything. So we want to make sure that those reports are formatted in such a way that they really tell you about the important things that are driving your business, whether it's labor costs or maybe it's overhead or it's cash flow it can be any and all of those things because they're important. And then you work your way up to the fractional CFO. The CFO is the strategy person, so they are looking at helping the owner and the leadership team with their vision. So they're another visionary that you know. You get an extended extension of your leadership team with a financial bent. So finance and accounting they're coming at every decision and weighing in on every strategic move that you're thinking about in your company and bringing the financial impact to you in your data-driven decision-making to make sure that you're making the optimized decision for your company.
Speaker 1:Does that make sense? It makes sense to me, but to the folks listening and driving right now, can you give me some examples of how this plays out in real life and the impact that you have when you have this additional force, this additional resource Horsepower?
Speaker 2:Absolutely Horsepower. Baby yeah, the additional horsepower that each of those different positions brings will. I like to say, we meet our clients where they are. So what we like to do is not unlike, probably, you is we like to get under the hood a little bit and understand what do you have currently, what do you have in place, what do you do well, and then what's the gap? Right, we know what best practices look like, we know what leaders need to make decisions, and we also get the feedback from the leaders. So entrepreneurs and the leaders are going. Well, you know I'm not getting this. I really, really want this. And so we try to put together the plan that's going to best bridge that gap and best address that gap for that leader, because that's going to help.
Speaker 1:Once we determine that that's going to help, once we determine that it's going to drive what level of of of professional that we're going to plug into that organization so when we're talking about making sense of the numbers here and all this data and all this stuff moving around, and obviously first we got to make sure it's complete, accurate and reliable Can you give me some examples here of how specifically we're making decisions?
Speaker 1:on this and even like real life examples of a specific event or trend or data set that we've used, and by having this additional manpower on on evaluating these things that normally get ignored because most people are just so focused in the day-to-day grind and maybe guessing what it all means, how can you go in now and look at all this stuff and create observations and make decisions that otherwise would not have been found?
Speaker 2:Yeah. So what happens a lot of times if you're dealing with a firm that has just a bookkeeper on staff or working with a bookkeeper, things like purchases, like I'll call it, real estate related. So if you're making some kind of asset purchases that are going to go on the balance sheet say you're buying furniture for your building or your apartment, whatever that is for your real estate and sometimes those get expense because the bookkeepers don't know. They're just like oh, there's a sofa or a TV or a monitor or whatever, and they just get expense to. Okay, let's just grab one office supplies, right? So something gets expense to office supplies by the time you know it comes around to because they're recording what's getting spent.
Speaker 2:So the number one outcome for them, or the number one task, is to get it recorded, not necessarily get it right, get it in the right category, because the accounting manager would know that's not right. An accountant with a degree would know that's not right. A controller and a fractional CFO would all know that's not right. An accountant with a degree would know that's not right. A controller and a fractional CFO would all know that's not right. And it would be bad because by the time the end of the year rolls around and that data gets handed to you, right what you're going to be asking questions and what you.
Speaker 2:Things will be so buried in that office supplies account that you have to unwind all of that and it makes your job right your job really tough. It's a lot, a lot less efficient for you when you're getting books. You know records that aren't reliable as well, and the owner can't really make decisions on it either. He's like well, how much did that you know project cost me in total? Well, if you've got stuff in office supplies, chances are you're not going to relate those back to that real estate or that build out project or the remodeling project that you took on, so that those are real. Those are real world examples.
Speaker 1:Right. So so these, these business orders, where, where is my money going? And then they look well, I know this isn't even reliable, so a lot of just put their hands up, but obviously you know by having proper classification and then you know. Obviously that helps them understand where should my money be going. Yeah, you know where should my money be going. Or identify fraud.
Speaker 2:Yeah for sure. And consistency, right. You want to make sure if office supplies is used for office supplies from real legitimate office supply purchases, for when you're charging major furniture purchases into that kind of account. So then you're like, well, wait a minute, I spent 20,000, you know $20,500 last year in office supplies, but the prior year I had 525. What the heck, Right? So those are legitimate questions and of course you would see that when you're doing the tax return and kick it back to the owner to ask the question, the owner would be like I don't know. I don't know what that is. Let me ask my bookkeeper. And the bookkeeper would have to go get a list of all of the transactions that went through there, Right, Because that's the only way they're going to be able to figure it out. But if you start it right and are consistent with the actual accounting and the things go into the right accounts or buckets, then all is good. And that's what. What enables data driven decision making inside the business from an operational standpoint.
Speaker 1:Right, yeah, so let's present here that that furniture was part of a remodeling project or a rental project. You would want to evaluate the profitability of that project that the furniture belonged to, but if it's buried in the wrong classification, you can't really evaluate whether those purchases made any sense or that project had profit. And now you're like, well, do I do it again or do I do something else? And if your numbers are a mess, you can't really gain that insight. So this stuff is really important and something that we see. That is just you know.
Speaker 1:What I find here is you know, whenever you're starting off in your businesses, you're lean, you start off in your garage or wherever, and these are things you don't think about. But when you hit a certain level of staff and revenue, people don't realize they got to level up in all areas of the game. You know their cybersecurity, their asset protection and their quality of tax planning because the taxes go up and, in particular, their systems and operations, and these are things that they forget. On the professional service side, they stick with their old systems and personnel, stick with their old systems and personnel. So I want to get your thoughts on at what point do people start thinking about leveling up and using folks like fractional CFOs in their business.
Speaker 2:It's a great question. Sometimes it's hard to determine that, but I will tell you one of the ways, kind of one of the items to look for or to listen for, is maybe your bookkeeper, your internal staff, is having either a lot of errors or a lot of questions, right, it feels like they're not able to do the job anymore as well as they used to. They could do it without a problem, right, and they were in their own little world and they didn't have questions, they could record all of those things. But the minute you have questions, you as the business owner, the entrepreneur, it's your business you're asking questions and they can't answer them. That should be kind of the tip, the little flag that goes up that says, hmm, I might need to level up my, you know, we might need to upgrade, we might need to upgrade that skill set.
Speaker 2:Another thing that is kind of a flag that goes up is when your business kind of takes off and becomes a bit more complex. Maybe you're using a new system, right, you're using maybe a new I'll call it business side system. So not the accounting system per se, but if you're taking more calls or it's a CRM side, it's a. Whatever that system is, whatever the platform is, if you're introducing some new things into the mix and they're just not picking it up and they aren't seeing how that system relates to the accounting side, because there's always, there's always an impact there, or you have a new banking relationship, anything new, anything change.
Speaker 2:Think of you know, think of people and change management. Right, we see that all the time where people just aren't able to, you know, adapt to whatever changes you as the entrepreneur, you as the business owner leader, need to have, because you need to have visibility, you need to have better customer service, you need to be more responsive, whatever that is, and it's not happening and it's confusing the heck out of your internal staff. That's another. That's time to raise your hand and go. I think it's time to get an outside evaluation of what we're doing, and those are the kind of things that we come in and can make sense of and can see that maybe the internal person is not trained up enough to be able to handle that next level.
Speaker 1:So you know, let me tell you about. We have a client and client has a lot of stuff going on, lots of revenue, high profits, but the client has gone through like maybe three or four bookkeepers and it's always a struggle to do the returns. And I think the client just gave up and said I'm going to do my own bookkeeping and reconciliations because I'm tired of babysitting and firing all these people. Ouch, I'm like you know, I don't know too many great organizations and large companies that manage to really grow and thrive. Where the owner was doing bank rexing classifications, thrive, where the owner was doing bank rexing classifications and I said we got to get you a high-level CFO who?
Speaker 1:oversees the bookkeepers and holds them accountable, because you've already demonstrated that you can build and run a successful enterprise. So is it really worth doing journal entries at like nine at night and putting your time with your family and your business on hold just because you've had some bad experience with bookkeepers? And now this person is still? It's taken a while for them to see the light here because they just had such bad experiences with bookkeepers here. So, um, what are your thoughts on people who've had challenges like this and and they just, they're just frustrated and they're pulling their hair with everything that's going on I'd say, um, first of all, make a list.
Speaker 2:Make a list of everything that needs to be done. It's almost like an inventory, right, take inventory of what needs to be done and you can go shopping for these people. They exist. You can hire them off of Upwork or, you know, indeed, I don't know. You got to know what you want in terms of do I want the person sitting in the office? Do I, am I OK with them being remote, things like that. But hire a little bit, you know, don't just hire a bookkeeper, hire for quality, hire, for you know people that have reviews that are glowing. You know 98 percent. You know good reviews, whatever, whatever that statistic is. Or you can work with accounting people who know talent, right, I can. I help my clients hire when they decide they want to hire internally, we help them do that. We'll help them scope out the work. We'll help them hire a CFO, an accounting manager, a controller, a senior accountant, whatever they need. And we talk about what are the benefits of getting that person in there and see where the work is If 80% of the work, or 70% of the work, is transactional based.
Speaker 2:Transactionally based, you want to get hands. I call them hands versus head. You don't need a CFO to do that work. You might need a CFO to oversee that work, to make sure and make sure the quality's there and make sure that the numbers are telling the story. But because there's 70 to 80% of that is transaction recording and repetitive type things, you definitely want to get that person who absolutely loves that kind of work, is skilled at it and they love it because you will never have to push that person again if that's the kind of work they love to do every single day right and kind of goes back to what I was saying is a certain breed of person that thrives and loves doing this work and you know it's not you kind of think they are.
Speaker 1:You'll know when you have the right person. Taking care of your numbers here is very. There's a big difference between that and someone who just needed a way to make a buck and got some quick online certification and didn't really know what they were doing and now they're just doing your books.
Speaker 2:So right and I'll add that to your comment before is they can get that certification from quickbooks without having an accounting degree. And that's a. That's a big one. Okay, great that you have the certification. That doesn't mean you know accounting, that just means you know just general rules of accounting.
Speaker 2:Yeah, and that just means you've passed their certification, but that doesn't mean you know accounting. So I, you know, I. I talked to my you know my business owner and entrepreneur friends all the time about that till I'm blue in the face. You've got to have somebody that understands accounting. They can't just come in and say, oh, I'm QuickBooks certified, Woo, and I'm like I don't care, that, that is not. You are not meeting my minimum base of the hurdle, right, you're not making my minimum yet. You have to.
Speaker 1:You have to be above that and maybe beyond yeah, and you know this is how this is where it kind of ties into what we do as well.
Speaker 1:First off, if we can't make sense of your books and records and if we don't know what your projected profit is which a CFO can be very helpful for, and obviously you need reliable books if we don't have any idea where your business is headed, it's hard for us to do tax play, because we have to time certain events and when we decide and you want to know how much can I put into this strategy or this idea or this investment a lot of it is dependent on what's actually going on and will happen with your business, and if you can't make sense of the numbers, it puts us at risk of giving you the wrong recommendation. So that's why it's so important to have a really tight system where you can make sense of this stuff, because these decisions could save you hundreds of thousands or billions of dollars in taxes, and that's why, when you get to that right threshold, it's worth investing into the right services.
Speaker 2:Yeah, it's definitely worth getting the right person in there. And, to your point, you know the tax plan, the whole planning. I call it the planning and analysis, fp&a work. That's definitely controller, fractional CFO. That's definitely forward looking. Whenever you're getting into forward looking stuff, that is somebody who's got lots of years of experience You're talking at least 15 years of experience and got a head on their shoulders and kind of been there, done that, so they can talk with the business owner and say, all right, what are you thinking about that? And you know what direction are you going to take the visionary stuff and pull it out of them and then assign numbers to it, because that's what a forecast is right, that's what a plan is. So that's what we do, and we do it from the operations standpoint so that the tax planning can happen, because once we have that plan done, it's typically a P&L right. It's typically okay, let's forecast the P&L for the balance of the year so that you can take a look at it and plan the tax maneuvers. That's basically what it is.
Speaker 1:Yeah, absolutely so. What do you say to someone who's not quite ready for this robust level of analysis and support yet? Let's say they're doing a profit of maybe $400,000 to $600,000 and maybe a million in revenue, but they still need help and they still need reliable books. What do you say to someone like that?
Speaker 2:Yeah, I would say, because we tend to pick up folks that are making $2 million and up. I'd say you know, look for that solid bookkeeper, look for somebody who is has industry experience where you are. So if you are an investor, you're doing property management, you're flipping houses, whatever that is, get somebody who's done that before and has really, really good reviews and has good relationship with I'll call it, you know the CPA community. Right, because that's, I want to say that's kind of an endorsement that they kind of know what they're doing and can operate in that kind of an environment and do a good job for their clients and for let's call it upstream right, because the data has to go someplace after they're. Call it upstream right, because the data has to go someplace after they're done with it. Right, they're feeding it to folks who are doing the taxes.
Speaker 1:Yeah, really sound advice there. And get out of your own books as soon as you can. Obviously you should be able to work so you make sure that they're doing it right. But you should not be your own bookkeeper. You should not dabble in part-time bookkeeping when you run a thriving enterprise.
Speaker 2:Hundred percent, I agree.
Speaker 1:What I want to know from you, patty what is one project or thing you're working on that is really exciting right now or going on in the world of Patty Lawrence?
Speaker 2:In the world of Patty Lawrence. Well, you talking like within my company or a client project, or what are you talking about?
Speaker 1:All of the above, whatever you choose how to best answer the question.
Speaker 2:Yeah, so I'm. I'm one of those entrepreneurs is also building my own company. So I'm finding kind of like your example there you have to get out of your own way. So I'm trying to engineer my path out of my own way and pull in and train and affect a successful transition for getting out of the day-to-day operations. So I have an ops manager and I have a client engagement coordinator, so we are doing things to structure their roles and get and kind of I want to say get the baton handoff successfully without dropping it.
Speaker 2:So we don't want to drop it on client side, we don't want to drop it internally. We want to make sure everything's smooth and there's no collateral damage anywhere. So that's my big thing for 2024. And then we're working on some really fun and exciting client projects as well. We've got actually a nonprofit that's in the arts community and they are expanding exponentially right now and we are helping them to shore up their internal accounting and all the disparate systems that they have that are coming in ticket sales, event sales, catering events, all that stuff. And also they're just raising a building, they're tearing one down and putting one in place, a huge performing arts center. So we're really excited to be able to help them through that. So that's got some let's call it construction aspects and banking aspects and all kinds of fun non-traditional accounting things that are happening, but still you need top level financial minds to help you out there.
Speaker 1:That's exciting. You know, I'm trying, you know, and we have a whole team of advisors and a lot of people, like a lot of firm owners, will only do the tax planning themselves. And the way I say it is, I only do tax planning if it's a new concept so I can teach it better. But it's like we have all these new things developing so I'm consulting on. Now we have things in scope like solar credit, depreciation tax credit.
Speaker 2:Amazing.
Speaker 1:Values and advanced charitable deductions, and now we're even considering film tax credit strategies. So I'm like learning all these new things. I'm like, oh man, I'm getting right back into client services now because I have to see this through clients before I hand it off. Yeah, certainly as soon as I've done it or as I do it. Our staff is really eager to get involved in these things too, so we're going to be focusing back on empowering the staff to take over some of these, these conversations as well.
Speaker 2:And you do anything with R&D tax credits as well.
Speaker 1:So we've never done them. We would use a third party for that because that's a little niche, but certainly we would help identify the opportunity. Sure, that could be huge.
Speaker 1:Some firms make a killing doing it, though, but you know we start off with mostly and all like real estate investors, and we're still strong in real estate, so the R&D space has never been a huge pull for us. That's great. Another thing for you guys listening especially you clients listening up we are doing a CFO workshop. It's going to be called Be your Own CFO, something along those lines, and we're going to talk about how you can look at your numbers and your books and activities and make sense of it all, and Patty's going to be there. She's going to answer your questions.
Speaker 1:That is going to be November 13th at 1 pm EST. So at 1 pm EST we're going to be joined by Patty and if you are a client of ours, you'll have the invite and access and access to the recording as well, and you'll have some free giveaways and work papers and things of that nature, so you can continue the conversation even if you weren't there in the live event. Now, if you email me and you're listening market Mark, actually market prosperal cpacom Maybe I'll give you an invite as long as this doesn't fill up, so you might still get to be able to join. A lot of exciting stuff, and these are people that are very crucial to your business development and success. So, patty, thank you so much for joining, and can you tell everybody else, if they want to learn more about you and engage in your services, where do they go?
Speaker 2:Yeah, love it.
Speaker 1:So two places. You can look me up on LinkedIn, patty, p-a-t-t-y Lawrence, l-a-w-r-e-n-c-e. Connect with me there. Or you can visit our website at TurboExecscom that's T-U-R-B-O-E-X-E-C-S dot com. Wonderful Patty. Thank you so much for your time. And also, you know, just go to Prospero CPA or email info at Prospero CPA. You're interested in our services, or join our team. Enjoy the show. We've got more good stuff coming your way.