188: Scale Your Finance Function with Jason Kruger

10
Jan

Jason Kruger is the President and Founder of Signature Analytics, an accounting firm providing outsourced accounting and strategic financial solutions to mid-sized companies who need more clarity from their financial data. We discuss the best way to get the most out of your finance data, how to uncover your business’ profit drivers, and the future of AI in finance.

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Scale Your Finance Function with Jason Kruger

Our guest is Jason Kruger, the president and founder of Signature Analytics, a professional services firm that helps improve business performance and achieve your goals by focusing on forward-looking activities, direction and strategy. Jason, welcome to the show.

Thanks, Steve. I appreciate it.

Well, it’s great to have you. We rarely have finance related topics and we’re going to make it fun. So let’s start with where we always start with the journey. This is an entrepreneur’s podcast. So Jason, please tell me how you got into this business and how did you have this idea to create an accounting firm with a different mission?

So I guess I’ve always had an entrepreneurial spirit, but at the same time, I wanted to make sure I perfected my trade before I just jumped into a business. And so I started my career in public accounting, spent most of those years with Deloitte or Deloitte Touche, which is one of the big four accounting firms in the financial statement audit side. And through that experience, I just, through that, my time there, I just saw all different types of businesses, all different types of startups, all the way up to Fortune 500 companies, different types of industries, and got exposure, just incredible exposure to how businesses run, different types of businesses, industries, those types of things.

I was a senior manager in audit, and I just didn’t have the drive or the desire, I guess, to be a partner at a firm like that. And, but what I did observe working with our, even with our clients that in the mid market and the small and mid market is that those companies deserved better than what they had as it relates to the accounting and finance function of their business. And so a lot of companies in the small mid market, they look at accounting and finance as a necessary evil, right?

They gotta pay their bills, they gotta invoice, they gotta collect cash, of course. They need to make sure they have enough cash for payroll, and they need to file their taxes at the end of the year. But as businesses grow, they start to feel the pain points of not really having a good handle or not leveraging their finance and accounting function in the way that can really drive value to their business. They start to talk to third parties like banks or investors, and they’re starting having to provide financial information to those individuals.

And they end up not being able to achieve the goals they have because they are struggling providing good financials that provide them with credibility to those third parties. And so what I also observed is that a lot of these companies don’t have the sophistication needed to take their business to that next level in that function of their business. And even if they did want that, top talent is very expensive.

And so what we’ve done is we’ve created a model that allows for that top talent to come and we were able to bring that top talent to our clients, to companies in that small mid-market and build a solution for them that takes them away from that necessary evil and really focuses on that forward looking side of their business, gives them confidence that things are being done the right way. And they’re getting good visibility into their financials and financial information to make decisions, achieve the goals they have, and then also to to work with their parties and manage cash flow and all the good stuff like that.

A robust finance function is critical for a business to thrive, from understanding cash flow to making informed decisions Click To Tweet

Okay, so Jason, what I’m really curious about this topic is what I’ve had observed in my clients is that finance is kind of an orphan. It’s an afterthought. So they focus on sales, they focus on delivery, operations, and finance is kind of a back office and, okay, will they get that? Do I get that done also somehow? But as you say, it’s a necessary evil. It doesn’t add value to the business. It’s often the perception, it’s just, you have to get this right. You have to make sure you don’t run out of cash. So what I’m curious about is what is the framework for a small business to put together really hard-hitting finance function?

So first, finance, as businesses grow, it’s a critical component to the business. One, at its basic level, cash flow, right? Gotta understand your cash flow as your business because that is, you know, if you don’t have, if cash flows are not, if you don’t understand cash flows, you’re running out of cash, you don’t have a business. So that’s the foundation. Whether you know anything else, it’s critical to understand the financial, or the cash flow side of a business.

Beyond that, the pillars that we look at in a small business are, you got people, you have processes, you have people, you have processes, you have your technology, and how you’re leveraging your technology, and then you have your reporting infrastructure. And so all of those come together to define a best-in-class finance and accounting function for business. Now where is the true value in finance and accounting? It’s one, for a business owner, it’s being able to sleep well at night knowing that bills are being paid and invoices are going out and you have confidence that that’s being done, being done timely and it allows for maximizing cash flow, right?

Cash flow is the foundation of a business. Without understanding cash flows, a business is at risk of running out of cash. It's critical to have good visibility into financials to make decisions and achieve goals. Click To Tweet

So we talked about cash flow, small business is a critical component. Gotta make sure you have at least at its basic level invoices and payables are going out in a manner that maximizes cash flow. So that’s number one, business owner can sleep well at night. Beyond that, it’s closing the books and then how do I get management, how do I get the CEO, the owner, the executive team, how do we get them good financial information in a reporting, from a reporting perspective so they can see deeper into their business, they understand the margins in better detail.

They, and a lot of business owners, you’ll say, hey, what is your margin of your, they may say, well, we’re about 50% or 60%. And they may have that number in their head. Or they may say, hey, we’re between 55 and 60%. Well, is it 55% or is it 60% or is it somewhere in between? Because one percentage point on margin for a $10 million business, that’s $100,000. That drops right to the bottom line. And understanding your margin is critical, not just as a whole, but maybe by product, by different product lines.

So maybe you have a certain margin on one product line. That’s a lot better than a margin on another product line. So maybe you can make decision to push that higher margin product line to produce more profitability into your business. Yeah, so those are just critical areas of the business that allow business owners to get clarity and make decisions.

I mean, it’s amazing, I see this all the time, a fairly well operating businesses on the sales and delivery side, they have a good product, they know how to sell it. And then they don’t understand the margins and they have different products and they don’t know which one is contributing, which one is actually burning cash or where is the 20 percent, that is 80 percent of the result. And then I ask them, OK, what is the profitability? Then they say, they talk about EBITDA, they talk about net profit. He says, okay, but what’s the gross profit? What is the contribution to your overhead of the other product? And then blank stares and they don’t even understand what I’m talking about.

And I just had a meeting a couple of days ago with a client and they have different product lines and it’s clear that they can’t focus on everything. They need to prioritize, but they have no idea where the profit is. They don’t know what the contribution is. They are just thinking about net profit of the whole business. So this is huge. So how do you go about it? How do you show people, is it difficult to get the contribution by division business size product, or that’s a very elaborate process?

It depends on the company and it depends on how deep we want to dig. I think there’s a cost-benefit to everything we do. We don’t want to spend an exorbitant amount of time, effort, resources, money to dig to the granular level. If one level higher or two levels higher will get you the same information, or similar information to make the same decision. So a lot of it also depends on the systems or technology they use and how that is integrating within itself or within each other. So those are critical components.

At its baseline, we want to make sure that we can close the books and produce baseline financials on a monthly basis. Can we produce a balance sheet and a profit loss statement on a monthly basis? And can we manage cash flows effectively. Once we can do that, then we can start digging into the details of the balance sheet and of the profit and loss statement to start breaking that down into more detail and at a more granular level. And that’s where we can start defining metrics that drive, what are the metrics that drive success in your business or in your industry? What are the industry standards for the metrics in your industry and how do we beat those?

I think it’s, you know, a lot of business, most business owners when they start a business they want to grow that business and they want to achieve some sort of an exit. And what I will say is that understanding your numbers allows you to maximize the overall valuation in your business when you sell. If you have good financial information and you can tell the right story, when you’re talking to, it’s easier to sell, and when you are talking to a buyer, you can maximize that sale price as well. And so, that exit, good financial information is critical to achieve that exit. So that’s one, but good financial information along the way will allow you to make decisions to maximize that value of your business so you ultimately can exit.

Good financial information allows business owners to maximize the overall valuation of their business when they sell. Click To Tweet

It’s a great framework as well. And I haven’t thought about it this way, but it makes a lot of sense. So first, you want to make sure you’ve got your correct numbers every month, you can close the PML balance sheet close to the end month because some of my clients struggle with that.

They take two or three months, right?

Oh yeah. I mean, my clients don’t do that, but I want them to close the books in five days, or I even encourage clients to have a good idea of what their months and results going to be before the end of the month or the end of the quarter. So we can have a meeting before the end of the quarter. So they hit the ground running with the, uh, with the complete plan and the complete quarter to execute. So, it’s close to the PLL balance sheet, and then you can dig deeper into the metrics, the work drive value, I love that.

And then you benchmark your metrics, so that don’t just say, okay, these are my metrics, I want to improve them marginally, but, okay, what is the best practice? Can we get there? What is the gap? How do we close the gap? And then I love this idea of the bigger picture, in a longer term. Okay, so we’ve got a well-executing business. We know where the numbers are. We know the metrics are. We drive the metrics. We have hitting benchmarks. But then, how do we actually long-term prepare the company for sale? How are we going to maximize the value, maybe recurring revenues, optimize insurance, and so on?

Yeah, exactly.

So this is great. Now, you talked about people process technology. So what is, please paint the picture for me. So what’s a great combination of people processing technology that you deliver this kind of financial dashboard?

So when we begin all of our engagements, we perform an assessment of the accounting and financial function of our clients. And so we look at those areas you just mentioned people, process, technology and the reporting infrastructure. And so we want to make sure that the people are qualified to be doing what they’re doing, that they have the support they need to be successful, and that the roles and responsibilities of everybody within accounting and finance structure are defined. That is critical for ultimate success.

People, processes, technology, and reporting infrastructure are critical components in creating a best-in-class finance and accounting function for a business. Click To Tweet

Then we want to give them the processes that they can follow to ensure that things are being done effectively and that the support and oversight is there to make sure that things are being done correctly. The last thing we want to do is not have a process for receivables or invoicing and therefore invoicing goes out wrong or it’s incorrect or it takes 30 to 45 days to get the invoices out. That’s another thing that something else we see is if it takes you 30 days to get your invoices out. You’ve lost 30 days of cash flow, and that’s critical.

So how do you get your voices out immediately? What’s your accounts payable process to pay the bills, to pay your bills, to maximize cash flow as well, and make sure that you are paying timely, accurately, and that there’s your proper approval process in there as well to limit fraud within the team. And then your processes, as I mentioned, the processes will ensure support and will ensure that there’s a timeline and delivery date and a process for oversight that’s critical for each component as well.

The technology piece is critical because we want to make sure that things are streamlined. We have a lot of our clients have multiple technologies and multiple systems and they may or may not feed into each other. And so you may have one system for operations or inventory management, you may have another system for accounting, you may have another system for something else. And so we want to make sure that we have an understanding and if possible that those systems are integrating with each other to streamline processes, create more efficiencies and eliminate risk of error.

And then the most important thing from a tangible perspective that management or the executive team will see beyond just making sure that they are managing caseload, things are getting done, they can sleep well at night because day-to-day stuff is happening, is the reporting infrastructure. And how do we build out the right reporting infrastructure? You mentioned dashboards, how can we build out, even in some cases we have real-time dashboards, right?

You’re getting, hey, here’s some critical metrics, we manage these, we can see this on a real-time basis. So you have dashboards, you have the monthly reporting infrastructure, you may have some flash reporting along the way, that gets you the information you need to be able to manage your business and make decisions. Our business is an example, we’re a professional service-based business, but the way that we manage our business, we leverage Microsoft Power BI for certain information. Before the month starts, I can tell you what our revenues are gonna be for that upcoming month.

So I already know what our revenues are gonna be, and I already pretty much know what my financials are gonna look like before the month even starts. And then throughout the month, I can manage the month and try to maximize that, or maybe certain things might change, maybe we might have a digital project that might pop up for a certain client, or we bring in a couple of additional clients throughout the month, or maybe a project drops off. We can manage that through the month, but at least we know we have a snapshot looking forward as to what the expectations are so we can manage our staffing, we can manage decisions that we make, manage our cash flows, and so we have that visibility and that can be done for all types of industries just by really understanding and having your numbers in place so you can do that.

I think it’s super important for business to have a cash flow to see three to six months at least in advance to see where they’re going to be. Maybe cash flow dips where you have to finance it and then you can prepare to finance it well in advance. Campbell have to go for exorbitant financing sources.

Yeah. Yeah. You want to finance when you don’t need the financing, right? Because once you get to a point where you need it, you’re desperate, and your business might not look as attractive, so you want to get that in place now. So if you see potential in the horizon challenges, maybe get a line of credit now, you don’t have to use it, you have that in place, have that ready to go,and you’re prepared for that.

There is an old saying that the banker is someone who gives you an umbrella when the sun is shining and takes it back when we are rain stars.

Right, exactly.

Okay, so that makes a lot of sense. Now you mentioned Power BI, and I think it’s a very powerful tool, but our listeners probably don’t know very much about it. So can you share in anutshell what can Power BI do for a small medium sized business.

Yeah, Power BI is really in its simplest form.It’s a way to see real information in real time, and you can build it out into dashboard form or identify certain metrics. It’s an ability, it’s a tool that can be leveraged to pull information from different systems and consolidate them into one system, which is Power BI. It could be from your ERP system. It can be from QuickBooks. It could be from your time entry system. It could be even from Excel or and Salesforce.

We use it for it to pull data from Salesforce, and it allows for you to set up different dashboards to be able to see where you’re at. So for us, we are professional service. It’s all about managing time, managing utilization. We’re able to see what our utilization rates are real time. We’re able to see what we’re budgeting for the next three months and then we would like to do it every, you know, three months, three month look forward. That helps us to make decisions on what our hiring efforts might be.

We’re able to see what our revenues are real time based on when the time gets entered. We have dashboards that show us what our revenues are on a daily basis. We have dashboards to show us we have a forecast for each month. And are we trending or tracking towards that forecast as a whole, but also on a client by client basis. So we’re able to see very quickly throughout the month. Are we meeting? Hey, we’re trending behind on this one client. Did the scope change for that month? Or is the work going to be done maybe at the later part of the month, or is something else happening that we need to be aware of? And so it’s really Power BI is a way to get information in a real time basis that’s organized in a manner that allows you to see that information through certain dashboards that you’re able to develop and build.

That’s great. So you can basically consolidate information, you have different systems and you bring them together and you have to manipulate the information so that you can get better data for better decisions.

Exactly.

What about AI? I mean, obviously AI is fast evolving. Are you guys using it? And how is it helping you and your clients to get better information to get things done faster?

Yeah, we do. A lot of the accounting systems will have some built-in AI components at various levels, which will allow for how transactions are entered, and it eliminates the need for a lot of manual entry. As it relates to accounting information and transactions, it still needs obviously a physical individual to review and to ensure that it’s been done and it’s done appropriately and accurately. We can, you know, we’re also looking into something that we can do from our, the way we conduct our reporting is we’re able to sync our reporting platform into our client’s ERP or even if it’s QuickBooks and develop that reporting package basically immediately once the books are closed.

And then the narratives that go along with that, there’s ways that we’re looking into to be able to develop the executive summaries, the narratives, the analysis can also be done and AI can be leveraged from that regard as well. We haven’t gotten there yet, but that’s something that we’re certainly looking into. I think Chat GPT really opened up a lot of eyes. There’s a lot of efficiencies that can be created through that, just through that process and drafted in certain analysis that can really create efficiencies.

I mean, our goal is to really create as many efficiencies as possible to bring down the overall cost of the blocking and tackling and to really focus on the strategic aspect and the true value add for our clients. And so the blocking and tackling is a commodity, right? And so we have the team to be able to do that and to really create efficiencies in that process, leverage the resources our clients may already have or the team that they may already have, but to really bring that cost point down is critical.

Yeah.

And that’s where I think AI and technology is able to do that.

So that’s great. So it is really, you have given a really clear picture of what the great finance function looks like for a small to medium sized business. So start with cash flow, then you have to have your people process technology in place, make sure you have confidence in invoicing collection payables so that you maximize the cash flow, you don’t get behind on the billing. And then you start to look at your margins, and you can optimize, you can create metrics to drive the margins, and then when you have the basics, then you can look at, okay, how do I take to the next level with Power BI?

How do I collect all the information? How do I make sure all the systems in my business talk to each other? And then you use AI basically to create efficiencies to get the plain vanilla reporting like the repetitive stuff and then you can focus on the strategy, how do I move the business forward. I love it, it’s a great framework so if people would like to learn more about how maybe you guys can help them set up this kind of system in their business or how they learn more about you or maybe reach out to you where should they go, how can they find you?

Yeah, absolutely. I mean, the easiest is our website, signatureanalytics.com. It’s really, you know, what we do is provide financial leadership and we fill in the gaps and provide support for clients’ existing teams. We’re not looking to necessarily replace their team. We’re looking to provide them that leadership to help them get to that next level. I can be, you know, happy to email me directly, JKruger@signatureanalytics.com. Our team is about 80 full-time employees. We serve with clients all over the country. A very defined process on how we ensure success with our clients. And our goal is to provide value that outweighs the cost point, and at a cost point that makes sense for our clients. We look at this as long term relationships or cost and maximizing value is critical.

There’s huge value in knowing what your numbers are and steering the ship with your eyes open rather than with your eyes closed and looking not just in the rearview mirror, but through the windscreen as well.

So especially during a potential exit, there’s so much that is left on the table a lot of times in that process. And just being where we work very closely with our clients through that process, a lot of, in a lot of cases, and really can work with them to maximize how is their business valued and make sure they’re not leaving anything on the table. Cause you give messy financials to a potential buyer, they’re automatically gonna discount it because they see that as risk, right?.

I just did a presentation this morning. I talked to a group of business owners about how to groom the business for sale and what are the boxes that they have to check and transparent, consistent financials are super critical.

Yep, that’s the first thing they ask for.

Give you the financials. And if things work there, then it builds the trust, and then they are looking through pink tinted glasses rather than ink tinted glasses, I guess, for the whole transaction. Fantastic, Jason, thank you for coming to the show and sharing your thoughts and experience and your processes. And if you listen to this podcast and enjoy it, don’t forget to check out our YouTube channel. Maybe you’re watching this on YouTube. So we are on YouTube as well. And give us a review and stay tuned because we’ll bring YouTube as well. And give us a review and stay tuned because we’ll bring another exciting entrepreneur with the framework next year. Thank you.

 

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