Episode 2: Take the Leap: Looking beyond starter accounting solutions

Madhurima Gupta:
Hi, welcome to The Mid-Market CFO Circle podcast powered by RadiusOne. I’m your host, Madhurima Gupta. We hear you mid-market CFOs, and we understand your challenges. On this podcast, we bring you conversations with the CFO community to help solve problems that you face at work. Today we have with us, David Worrell. David is an award-winning entrepreneur and executive, as well as the author of “The Entrepreneur’s Guide to Financial Statements”. He is a partner and CFO of Fuse Financial Partners. Prior to establishing Fuse, he founded and ran, and sold three successful companies InfoQuest!, Monterey Venture Partners, and AmeriStart. So, right now he’s working and serving as a partner and CFO, uh, wherein he’s focusing on assisting small businesses and swiftly scaling up to the next level. David, thank you so much for your time today. Uh, I’m glad that you could do it.
David Worrell:
Sure. Yeah. And thanks for having me, uh, this is a great podcast, and I look forward to, um, to seeing your future episodes as well, of course.
Madhurima Gupta:
So, today, essentially we are gonna talk about why fast-growing mid-market companies need to look beyond starter accounting software, right? So we really wanted to understand the challenges that a CFO in a fast-growing lower mid-market company face. Right? So can you give us an idea in your experience how the accounting requirements of such companies alter as the business grows?
David Worrell:
So, as you said, I focus on smaller middle-market businesses anywhere, really, even below middle market from, from just a million dollars in revenue, up to 30, 40, 50 million dollars in revenue. And a lot of our clients are those fast-growing companies who might start with just a business plan and, you know, hope to get to $50 million in a couple of years. And so as they grow, uh, the accounting systems have to be flexible enough to grow with them. But that creates a real, uh, dichotomy, right? You’ve got uh, an early-stage company or even just, let’s just say a small company in the 2 to 5 to 10 million dollar range that needs simplicity in order to streamline its processes and procedures. It doesn’t need Oracle or SAP in order to do accounting for a 10 million dollar business, right. Something like that would just crush those people under, under the weight of additional processes and red tape and, and software and hardware, right? So, almost everybody starts with either QuickBooks, QuickBooks Online, or a couple of other similar projects, uh, packages called Xero, with an X. X E R O is a big one. Um, Wave Accounting, I even see. And I even see people start with nothing but Excel sheets. And while I think that’s far too simple, it’s really interesting to me how QuickBooks has really invested in both their online platform and their QuickBooks Desktop Enterprise software to create a package that can scale with a company up to 50 or a 100 million dollars. And, and people used to laugh at that, but I have multiple clients who are doing 50 and a hundred million of business who still use QuickBooks.And I think that that presents a really interesting challenge. Do you stay simple with this simple software that’s easy to use? There are a million people in the United States who know how to use QuickBooks well and you can hire them for much less than you can hire somebody to run on SAP or Oracle. So do you, do you keep a simple piece of software like QuickBooks or Xero that’s easy to run or do you switch, you know, when you get it, when you get to 50 million dollars, 20 million dollars, do you switch to something that’s more robust? And you know, I see both sides of it. A more, uh, a larger company needs more robust reporting and wants to do more robust things. They have demands from their bank. They have demands from their, uh, inventory control positions or their cash flow control. And, and the company as a whole is getting more and more sophisticated, but does their accounting have to get more sophisticated? I think to a certain extent that it does. But I also know that most people probably only use about 40% of the capabilities of QuickBooks, QuickBooks Online Advanced, QuickBooks Enterprise. And so, uh, you know, my feeling is keep those systems absolutely as long as you can, but build on them by not only learning how to use them properly but learning to use them fully. So taking effect, taking advantage of all of their features and adding things from the ecosystem. You can build quite a robust accounting and finance platform using a- otherwise very simple accounting system. So that’s my choice is to build on rather than to throw away and rebuild. Right.
Madhurima Gupta:
Interesting that you mentioned the app store. So if you know, if the listeners right now are some of the QuickBook users in order to utilize the QuickBook software in the best possible way, what would be some apps that you would recommend them to check out?
David Worrell:
Oh man, of course, it depends entirely on your industry, right? But we have, uh, in my business, I serve a lot of e-commerce customers and, uh, apps like TaxJar, which does sales tax for every state in the country. There are inventory add-ons that are made by Zebra and, uh, Fishbowl, and those sorts of folks who can help you manage inventory. And all of that can be automated through an app store app. So there are thousands of apps, whatever industry you’re in, I know that you can find something out there. CRM is, uh, probably the next big one that, that everybody needs to start looking at. How do you integrate customer data with accounting data? And so there’s plenty of CRM, uh, things that bolt onto QuickBooks also.
Madhurima Gupta:
And how about, uh, implementation, right? So if a company is looking to use QuickBooks, right, what would your preference, or what would your suggestion be? Should they be looking for a cloud-based solution or a privately hosted option?
David Worrell:
So again, it comes down to which uh, what industry you’re in, and how robust you want your reporting for. 90% of businesses out there, I really do, I like QuickBooks Online. The advantages are so huge. Being able to call somebody like me, to help you with your accounting without rolling out any new hardware, without having a VPN, without having servers, and all that kind of stuff. So, uh, QuickBooks online and now there are QuickBooks Online Advanced, very robust. The alternative to that, and we do use this for our construction clients, for our, uh, contractors, folks who have just really sophisticated needs to do project-based accounting, billing based on meeting particular goals, and then their AR is very complicated. They might wanna stick with QuickBooks Desktop, particularly Desktop Enterprise. And if you are a Desktop Enterprise client, you just can’t give it up. What you should, what you can do is consider hosting that on a cloud server of your own and then giving access to your accountants or your remote, uh, workforce or your, even your field people could access QuickBooks online via a cloud server. If you’re used to using a desktop computer and a server in a server room around, down the hall, and then you had to buy a second server just to run QuickBooks and a third server just to run, uh, Microsoft Exchange and Outlook. Now you can throw all that stuff out the window and hire a data center or a hosting partner to give you an entirely, uh, virtual network. And so we do that with our QuickBooks Desktop clients, our QuickBooks Enterprise clients- works fantastic because we still have access, they have access, uh, it’s integrated in their whole workflow. Sometimes the entire company will adopt this virtualized network. And so imagine using a $200 Chromebook and firing up a windows 10 pro with, you know, uh, 16 gigabits of memory and, and, uh, limitless hard drive and connections that run QuickBooks and everything else. And you’re doing it on a $200 piece of hardware that, that is, that’s so amazing. And it reduces the cost of ownership of all of that hardware for the company. And it pushes all of that engineering out to where the engineers are, right? I mean, let’s put the IT in the hands of the IT guys. And as accountants and CFOs, let’s stop worrying about tape backups and compatibility issues and ethernet wiring. And is the wifi router on, or not. If you can plug into the internet, you can let somebody else worry about all that stuff. And I think that’s such a powerful, powerful solution.
Madhurima Gupta:
And, um, if we talk about the stages, um, of growth in which a mid-market company, outgrows QuickBook solution, right, then what would you say are the pointers to look out for when a company actually needs to create, a CFO needs to take charge and plan, uh, and upgrade?
David Worrell:
Yeah. Yeah, it’s totally in the CFO’s role to project and drive the train when it comes to, when are we going to make this change from a simple accounting to a more robust accounting. And I think that needs to be driven by real business needs and not just some ego that says, Hey, we’re 50 million dollars now we shouldn’t be running QuickBooks. You know, number one is, make sure it’s business needs driven before you make that decision. Wait, as long as you possibly can. Plan for it so far in advance, that it will drive you crazy doing the planning. And the last thing I’ll say is don’t discount the importance of accounting block and tackle, uh, balance sheet issues when you’re making the transition. And if you don’t have a fantastic balance sheet that you can come out a QuickBooks and say on, on December 31st, this was our balance sheet in QuickBooks on December 31st, this was our balance sheet, our brand new beginning balance sheet in whatever ERP. And if they aren’t exactly the same, all bets are off. And don’t forget, you’re gonna have to go back into that QuickBooks to get some historical information a year from now two years from now, five years from now, you might look back at QuickBooks and say, oh my God, we’re under, we’re getting audited. What was this receipt? What was this invoice? So make your QuickBooks absolutely pristine and then set up your beginning balance sheet and then flip the switch and start collecting data from the other parts of your organization.
Madhurima Gupta:
So the other thing that I wanted to understand is that how, so now that we have established, right, that these are certain, uh, triggers that will help you figure out when should you move to the ERP. Now, when you know, the organization has established these, uh, these points and they’re ready to, um, you know, move to an ERP, how should a CFO ensure that this transition is affordable and cost-effective?
David Worrell:
You know, my best advice is, start with accounting, do the planning, everything in advance, but also make sure that the, that you bring in an external consultant, an external, uh, software implementer. And that’s not me. And I’m not telling you to hire me just because that’s what I do. I don’t. When we go into an account that wants to transition into something new, we always look for the expert, uh, user of that final software. And there are two kinds of these people. And I think this was really interesting that I, I just learned this six months ago. And, and I, I learned it the hard way, or rather my client learned it the hard way there. If you go to and buy NetSuite from NetSuite, they will assign you on a,uh, an implementer, right. A consultant. And you’re thinking, wow, this is great. NetSuite Corporate gave me this guy. Turns out that those folks are not as well trained, not as, uh, long-lived, not as robust as some of the independents that are out there who have made their living doing NetSuite installations for hundreds of years. So lots of people start at the corporate level and are a NetSuite corporate partner, but then actually graduate out of it. You know, it’s kind of the opposite for me. Lots of bookkeepers start learning QuickBooks and only become a QuickBooks partner like we are. We’re a platinum level, elite QuickBooks Intuit partner, right? But you have to earn your way to get there. And NetSuite is kind of the other way around. You can buy your way into being a partner, but they take so much of your income that eventually when you get good, you’re gonna want to graduate away from NetSuite. And so, uh, we look for those independent guys who have a longer track record who have a stable and steady workforce, because if this is gonna take six months or a year to implement, you want the same team on, on that implementation from day one to day 100, right? Uh, and boy in today’s labor market, that’s asking a lot. So find somebody with a great track record, a good culture that’s been around for a while, has good references, and bring those experts in early. Because if you don’t spend the money on the expertise early, you’re gonna spend the money twice, redoing everything by, you know, later. And, and I can’t even count how much it’s gonna cost you in the meantime, to run your business without any kind of software at all.
Madhurima Gupta:
I have one more question for you, right? You mentioned that, uh, you have a lot of clients come in, you guide to move beyond QuickBooks and other accounting software I’m sure. So, um, you know, what have you heard to be the reason why they wanna move? Let’s say if we keep aside the growth that they’re seeing, right. A number of orders and all of that, you know, that is something that’s bound to happen. Apart from growth, right, what are the other factors that you’ve heard from your, uh, clients as the reasons to move beyond QuickBooks?
David Worrell:
It almost always boils down to a really fundamental reporting need. Somebody asks a really important question. So they’ll, they’ll be sitting around in a strategy meeting and they’ll say, uh, what’s the key to our growth. And, and somebody will suggest that the key to our growth is, um, the gross margin on product X, when we have customer Y in geography Z. And if we could just measure the gross margin of product X in customer Y in geography, Z man, we would know so much about our business and we could really, um, cherry-pick customers and we could fine-tune our pricing, and we could project our cash flows and all those sorts of things. And when you get to that level of wanting to be able to do that kind of analysis, man, some of the simpler software just doesn’t let you do that, right. There are reports that are hard to create or impossible to create in QuickBooks. And I guess, that’s especially true in the, uh, we see it in the building trades. If you’re building a skyscraper, construction accounting can be so complex that QuickBooks just doesn’t do a great job of handling it you know. And assemblies, people have a really rough time doing assemblies in QuickBooks. It can be done, but you imagine you’re building a car, right? You’ve got a thousand parts that go into this car and you have the inventory of each of those thousand parts. And then you’re trying to figure out the cost that gets sold off a car. That is really hard with QuickBooks, and it doesn’t kind of happen automatically. So it’s almost always driven by a need for really detailed reporting or automation of a complex business process, uh, having to do with costing, project costing, um, manufacturing, cost accounting, that sort of thing, where you get deep into the weeds and somebody says it’s really worth knowing these numbers and QuickBooks simply can’t give them to us.
Madhurima Gupta:
Cool. So, uh, I think those were primarily my questions. Um, and before we sign off, I, I wanted to ask if you have any parting thoughts, uh, for fast-growing mid-market CFOs who need to look beyond their starter accounting software.
David Worrell:
Well, you know, I think in general, uh, the role of CFO in that kind of fast-growing lower middle-market company is changing these days and has been changing for a while. Of course, we’re getting more and more strategic, which I think is great. At the same time, the more time you spend on strategy and finance and growth and mergers and acquisitions and all the fun CFO stuff, sometimes the less time effort, energy, attention, you pay to fundamental bookkeeping and accounting, right. Um, I just can’t tell you how many times we get called and we might get called by a fantastic CFO, but we walk in and he can’t create a set of basic financial statements that he trusts because the accounting has been screwed up. And so the CFO wants to rise to this level, but I think we’ve got to remember, good business is built on good accounting. You can’t make good decisions with bad data, bad numbers. So if you’re raising to that level, make sure you’re backfilling with a strong controller, a strong, full, uh, full charge accountant, not just a bookkeeper or, uh, my favorites are, you know, the people who hire a mathematician because accounting is math, right? Well, no. It’s not really math, it’s accounting. And if you put a mathematician in an accountant’s job, the checkbook might look reconciled, but the balance sheet is gonna be a mess. And if the balance sheet’s a mess, the PNL, is a mess, and you really can’t trust any of your reporting at that point. So don’t forget the value of fundamental accounting, even as we, as CFOs strive to be more and more strategic and, and forward-looking. I love strategic and forward-looking, but you can’t do it without having a solid foundation of accounting.
Madhurima Gupta:
Great. So thank you so much for your time. Um, it was great speaking with you. I hope that we get you back on CFO Circle again sometime soon. So thank you so much.