VOGSY is fortunate to interact with leaders and influencers involved in a range of professional services organizations (PSO). The PSO Knowledge Expert Series brings you their thoughts on the topics that matter most.
For this edition, we spoke with Jody Grunden, co-founder & chief executive officer of Summit CPA Group. A pioneering virtual CFO services firm, the company operates under a value-based model, using forecasting and key performance indicators (KPIs) to help clients gain longer-term financial health and wealth.
Jody is the author of “Digital Dollars and Cents: A Virtual CFO’s Playbook to Help Digital Companies Create a Financial Roadmap to Success.” He regularly speaks and leads discussions with groups of creative service professionals including web development, design, marketing and branding agencies.
MVL: Summit CPA Group is not your typical accounting firm. How did it come about?
JG: My partner and I started Summit CPA Group in 2002. At first, it was pretty much straightforward accounting work, but we began to feel our services could bring clients more insight and control. We were also tired of giving up our lives between January and May, the traditional busy season for accountants and tax pros.
It was two years later that we really honed our focus. We decided we’d have greater impact meeting with clients on a more regular monthly basis and doing a deep dive into a dynamic forecast with them. From cash flow to resource utilization, we drilled down further and more frequently, and they looked forward to getting together because they’d gain visibility they never had before. They wanted us to take on more responsibility, so we went to weekly meetings and added services. We had been getting together face-to-face, but with the development of the internet, we realized video conferencing would be much more cost-efficient.
And that morphed into what we are today – providers of virtual CFO services.
MVL: Virtual CFOs – that was pretty innovative back then.
JG: We launched the term “Virtual CFO Services” back in 2004. There were other terms being used at the time, mainly “Outsourced CFO.” We wanted to use something that would stand out and more accurately capture the services we were providing. It took quite a while before it started gaining traction around 2011. Then, a creative agency from Rhode Island contacted us, which allowed us to pick up our truly first virtual engagement. They were a distributed company, which was practically unheard of at the time. We were able to learn from each other and evolve further.
Eventually, we caught the attention of Forbes and ended up in an article that generated a lot of exposure. This led to opportunities for additional stories in Forbes, Entrepreneur, Inc. and other news outlets. That first piece also brought us nearly 2,000 resumes in 48 hours. And that pool of talent – the ability to hire the best no matter where they’re located – helped us handle the growth we had been experiencing and the boom that followed.
MVL: You mentioned creative agencies. What are we talking about?
JG: We have a particular niche with digital marketing, design, web development and branding agencies.
Marketing has always been a passion of mine. I suppose it really began to fascinate me when I was selling high-end cutlery to pay for college.
When you’ve got $800 knives, you think your only prospects are going to be wealthy. But that wasn’t the case. It was middle income homes – where people actually used the knives consistently – who were the best market. A good knife will last forever and make work easier.
I learned if you create value and provide good service, price is secondary, and we evolved marketing around that.
We did very well. I ended up running a sales team of about 30-40 people, all while I was still in school. And, it provided me with a lifelong lesson, one that continues to guide Summit CPA Group.
MVL: You’ve said you’re trying to change the way people think about accounting. How does value factor in?
JG: That’s what we’re all about. Hiring a full-time CFO can cost $175,000 to over $480,000 per year, plus vacations, bonuses and other benefits. This can be a lot for companies, particularly new or growing ones, and of course, professional services organizations (PSOs) like those involved in digital marketing.
With us, you can outsource your CFO and accounting needs. Our experts manage bank relationships, facilitate weekly drill-down meetings on finances, business forecasting, company-wide KPIs and more. And our average virtual CFO package costs $60,000 per year, a lot less than bringing someone on board full-time.
Further, we don’t charge hourly – we use flat fee, value-based billing. We bundle services and can quickly scale up and down. Clients know what the cost will be up front; we even have payments electronically deducted weekly, eliminating our need to have someone deal with accounts receivables.
MVL: So what are the top KPIs agencies should be looking at?
JG: What creative shops need to know most of all is how much cash they have in the bank. They have to understand what percentage of revenue to keep. We advise a minimum of 10%, which typically covers about two months-worth of expenses. If you put aside 30%, it’s more like six months.
Once we know where the cash level should be, we teach clients how to get there. We focus on productivity measures like utilization; you have to have a grasp on how much your team is being utilized immediately and down the road. You determine how many hours per week your people should be billing. You take into account non-billable hours like holidays, vacations, time between projects, research and development. From there, you can figure out what an individual’s billable goal should be for the week and year.
We then look at average bill rate by comparing the standard amount charged to clients versus what’s actually being realized. Often times it’s different, and unfortunately, in the wrong way; you could be charging a client $200 but only realizing $140 because the work is consuming too many hours. We tell clients there should be a gap of no more than 10% between these figures. If it’s more, then there are internal flaws that need figuring out.
No one wants to reach a point where there’s work left to do and no billable time left to do it.
You need to know if the issue is with quoting, project management, or a combination of both. The ideal would be to get the work done quicker and more efficiently. Doing so, you’re not only making more revenue per hour, but you have freed up capacity and resources to take on other projects and increase revenue.
MVL: So you start with one KPI but it snowballs and you end up with a lot more?
JG: Absolutely, and that’s what you want. For instance, you can evaluate gross sales and profit based on revenue, production expense to revenue, and marketing to revenue. If net income is 20%, terrific. If not, you look for the issues; perhaps marketing dollars aren’t generating enough revenue? Then, if those are all good, we move on to pipeline metrics to determine if the pipeline is sufficient to bring in the revenue needed to satisfy the future forecast.
One data point will always lead to another, and you have to look at the whole picture.
Which is why our customers loved talking to us more and more. For professional services organizations, a lot of data is hidden when it could be used to make strategic decisions.
MVL: Makes sense. Final question – a personal one. I hear your “go to” is a Grey Goose martini with a blue cheese olive. Is the blue cheese olive too much for most people?
JG: It’s unfortunate that’s the perception; I love the blue cheese olive and half the places I go to don’t have them! Frankly, I have a hard time with an olive that doesn’t have blue cheese. I say go big or go home. That, or try a Manhattan – just make sure it has the right kind of cherry.
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