Dan Schmidt - The Emerging Business CFO

Based Missouri, USA, Dan Schmidt has embraced Xero as the core solution for his clients. Dan likes to solve problems. He helps clients adopt a suite of cloud solutions that improve their daily operation. In the interview he explains how accounting provides a common language in business. The language can assist in effective communication across different business department.

I first heard of Dan from the ecommerce accountants Scott and Patti Scharf of Catching Clouds. They recommended him as an inventory expert. I went on to interview him for several blog posts I wrote with Trade Gecko, you can read them here:

15 inventory management techniques that will transform your business

How to optimise inventory turnover: 9 tips

How to calculate inventory ratios and KPIs: 5 easy formulas to start using now

Dan Schmidt describes himself as a CPA with a passion for helping entrepreneurs succeed by understanding the meaning behind the numbers in their business. With more than 12 years in public accounting and consulting, Dan specialises in creating cloud-based systems that make businesses more efficient – helping accounting; inventory and other systems seamlessly work together.

Dan can often be found on forums, and within his co-working space – helping business and colleagues work through their own problems. He often helps fellow Xero advisors in the Xero Mastermind Facebook group.

If you enjoy today’s episode, I’d love it if you’d leave a review on iTunes and share it with your colleagues.

Subscribe to Episode 33 of Cloud Stories on iTunes

Heather: I started by asking Dan, who’s a historical figure you’d like to have coffee with?

Dan: I think it would be probably the person who somewhat founded our profession back in the middle ages and the monk who first figured out double entry accounting and probably part of that’s, there was no system in place, there was probably just somewhat mass chaos at that point in time about how accounting worked, it wasn’t even a thing back then, and so he had to figure out a system from the ground up. I feel like so often that’s what I see when I’m working with my clients of creating order out of chaos, especially people who maybe come to me and don’t have anything in place and the first time I’d love to pick his brain and figure out how those ideas came to him. How he got the concept of the double entry to make sure that everything stayed in balance all the time and just really understands where that came from in the first place.

Heather: Yes absolutely that would be really interesting. What did you like to do when you were 12 years old?

Dan: Oh when I was 12…what didn’t I do might be a better question, honestly. I think my mum would tell you when I was 12 and went out and the rest of the time I was growing up that my favourite thing to do was go to the library, get a pile of books, learn how to do something new, figure it out, master it, then move on because I was bored at that point-

Heather: -that’s so interesting-

Dan: -figuring it out and then once which is ironic because I moved into a profession where you tend to do the same thing repeatedly month after month sometimes right?

Heather: I get the impression from everything that I read of you over the last year that you really enjoy a problem and when you see someone’s got a problem…and I can see that you’re jumping in trying to work it out and figure it out. So you’re a real problem solver?

Dan: Yes.

Heather: Do you like doing jigsaws as well?

Dan: Yes I like book things. Now with a growing business and three small children I’ve had to scale back the hobbies and so the woodworking and all the rest of that has had to go by the wayside for right now. But I’ll get back to it eventually.

Heather: Yes, I think that while accounting, which is sort of the profession that we’re in, can be quite automated and repetitive, there are some really interesting problems to solve and I’d probably, that’s the side I like as well.

Dan: Especially now with the rise of the cloud systems and the fact that it’s just kind of this new frontier that we haven’t dealt with before and how do you solve problems in the context of these new system and the platforms it makes for an interesting life.

Heather: Yes it does. Absolutely. So for our listeners Dan, can you describe what your business does?

Dan: EBCFO which used to be Emerging Business CFO, we still go by that sometimes, but I got very tired of writing that out at the end of every email for a domain name so we went to EBCFO instead, we’re a virtual CFO shop. We don’t just focus on the CFO side we’ll do the accounting, the bookkeeping, the payroll and then we’ll layer in the CFO level services as people need them. Cashflow, management, forecasting, budgeting, helping put together a pitch deck if somebody is doing an investment raise. We do work with the start-up and the tech community’s pretty heavy so we do get into the fundraising side of that every once in a while, key financial metrics with really the goal of helping someone who is an early stage or growth stage business. Use account not just for compliance, in the US it tends to be tax driven, but use it as a business intelligence tool to be able to understand their business. When you really get down my perspective is try it, and they teach it at the universities in the US that accountings a language of business, and it really is, and it’s not so much from my perspective about whether you’re getting a technically correct financial statement, although that’s important, but that’s just the beginning and I think a lot of accountants stop with that and I want to see the profession start to move into more of the … we have a technically correct product that we’ve produced now. But what does it mean and how do we use that to coach a business owner towards growing their business, not just leaving that as a compliance tool.

Heather: I love everything about that answer. That was a sensational answer and I really love the fact that you are using the word coach because I don’t know whether it happened in the US, but Australia had this massive rise of business coaches who had very minimal qualifications and I would be going, how can they be coaching you when they don’t understand the numbers and some of them would freely admit they were business coaching without even looking at the numbers which was to me just inflating someone’s ego without really understanding what’s going on and I absolutely agree; I always kind of refer to accounting as the international language that we all kind of work on.

Dan: Yes we have had the same rise of business coaches in the US and some of them are very good. The reality is you don’t want your accountant coaching you on your marketing strategy, in fact I’ve had to hire people to help me coach me on my marketing strategy, but accounting provides that common denominator, that common language to be able to talk about all the different components, whether that’s sales and marketing, whether it’s operations, whether it’s finance of course, any of those you can put into a common language and then communicate effectively across the different areas of your department and what I found is every business from a very early stage on up, and we don’t usually see it this way, but I haven’t yet found a business that doesn’t actually have multiple lines or multiple things going on inside and being able to articulately talk about that at a granular level is really where I think as accountants we can start to move into those companies and help them understand that.

Heather: Absolutely. So why did you start your business in the first place?

Dan: I’ve always had a soft spot for entrepreneurs so the reality of it is in addition to being the kid that spent the time at the library so you’ll probably pick up a common theme that I was very busy as a child, I was the kid that had the long care company in high school and then got to college and started another company; I just couldn’t help myself. Once I graduated I figured I had to go into the “real world” and get my professional certifications and charts and stuff but I always wanted to come back to working with entrepreneurs and small businesses-

Heather: –so you’re a bit of a serial entrepreneur then?

Dan: I kind of can’t help myself. Yes it’s actually hard to focus on just one company now. There’s always something else that’s pulling me away from EBCFO even though that right now that is my core of what I want to do and what I want to see grow but there’s always so many other interesting problems to solve that it’s really hard to focus sometimes.

Heather: Yes absolutely.

Dan: I think the key thing that kind of set it off for me was I spent 7 years in public accounting on the audit side and then 5 or 6 years on the consulting realm and worked all the way from the Fortune 50 down to the middle market companies and then kind of made a stab at hanging my own shingle. Is that a phrase overseas or is that just a US phrase?

Heather: Hanging, say it again, hanging my own shingle?

Dan: Hanging my own shingle. Yes.

Heather: Is that like a roof tile?

Dan: Yes, exactly and it was very much the traditional CPA, tax, bookkeeping play except for one day when I gave one of my clients their completed financial statement and they just took the financial statement that I’d spent so much effort on and stuck it in a draw without asking any questions. Well my response was “well let’s talk about that” and they said “well I don’t know what any of that means. All I know is that I’m supposed to have it done”. Well that’s the lightbulb goes off at that point. So as a profession, historically, we’ve been somewhat failing these small business owners because we’ve told them they need to do this and we’ve told them they need to get their taxes done obviously, because you don’t want to get in trouble on that side, and they know they’re getting it done but we’re letting them hang because we’re not coaching them and we’re not educating them on how to think about things from a financial or numbers driven perspective now. Numbers aren’t everything. For working with entrepreneurs you find out very quickly that that gut feeling, kind of the seat of your pants decision is one of the fun things about working with entrepreneurs because sometimes they’ll make a decision that doesn’t have any basis and reality you can’t logically connect the dots and they’re able to make that intuitive leap. But there has to be balance in all things and sometimes the accounting and finance can be the balance to that for the entrepreneur.

Heather: And I think what you’re saying there sometimes it’s dangerous for the young players because they look at these very rich, very successful entrepreneurs and think that they’re just taking risky leaps all the time but they’re not, they’re taking very educated risky leaps and many of the high level entrepreneurs have an extremely good understanding of their numbers even if they don’t talk about it all the time.

Dan: Especially the second and third time entrepreneurs because they’ve been through and if they didn’t have a basis and understanding operations and finances when they did their first company they for sure have it when they start their second or third. One thing that’s interesting too that I’ve seen is there the outsource CFO model is not anything new, what I think is new is being able to push that down by level and technology to us earlier stage company usually a part time CFO would come in and just do CFO work for a company who is at 10 or 20 million, but the reality is most companies when they start to hit, in my estimate, somewhere between half a million and one million in top line revenues is where they start to see complexity. That’s where they start to run into the cashflow issues. That’s where they start to have multiple product lines that they’re trying to make decisions off of. That’s where they’re trying to project break even points. That’s where they’re trying to go fundraise all these technical things and so that gap from half a million up to 10 million, historically they haven’t had access to this skillset and that’s where I’ve seen a problem, a problem which to me says opportunity as an entrepreneur of course, to move in and serve that part of the market well.

Heather: Absolutely and what’s great, in which we’ll go on and talk about Xero, but what’s great about Xero is it does seem to be able to scale to some of these companies as they go from tiny little specks on the landscape to a bigger company like that.

Dan: Yes and it almost has that plug and play mentality that you can start somebody on it on just the Xero core, it just gives them the basics, we’re not making revenues yet, we’re pre-revenue, we’re just trying to track our expenses so we know what our burn rate is. Okay great, now we’ve got revenues, but we can still do it all inside Xero. Well now we’re a SASS tech company. Okay now we’ve got a thousand subscribers a month. That’s a little cumbersome to plug into Xero and try to track a thousand invoices in Xero a month. Okay then let’s find an add-on solution, or look at an eCommerce company, same thing. Maybe we start with Shopify or TradeGecko or one of those other store fronts. Well at first you can hook them directly to Xero. Well then maybe you have two sales channels and you need to be able to have an inventory manager than can update both of the sales channels. Then you need to have your inventory talk to fulfilment and being able to create a full software stack and have almost a plug and play. It’s almost like playing with my kids Lego sometimes that in the Xero ecosystem, and this is what I love about it, it’s no longer a single solution that does everything 70% – 80%, you can find a fully custom solution that does 99% of what you need it to do if you’re aware of what’s out there. Wire framed things out effectively. Make sure you know what data is going to reside in what part of the platform you’re building for a client. Hook those things up and turn them loose and then you’re getting good granular data, it’s residing where it should, you’re not blowing up any system and then you’re also allowing it to scale. Xero won’t scale to 5,000 or 10,000 transactions a month, but some of the eCommerce solutions will and you don’t have to push things over in detail because you’ve got the data sitting elsewhere.

Heather: Yes absolutely and the Lego analogy is a really good one especially when it seems to have, and I don’t exactly understand the technicality, but it seems to have such a robust API that you can pull of the yellow brick and put on the red brick if something evolves in your business and suddenly the yellow solution, whatever that may be, doesn’t suit you anymore you can just plug in. You don’t have to go through that massive what am I going to do now. Do I need to implement a whole new business platform solution. You just need to look in a specific area. So many business owners have access to bookkeeping services. Putting numbers in the bucket and tax services, both of which are essential. But there is a gap between these services and what entrepreneurs need to understand their current and future financial picture. There’s extreme value for business owners to really understand their book; their financial picture. So not just from an accounting or bookkeeping perspective but from a strategic perspective. So why is that important? Perhaps some emphasis on why in terms of strategy is that really important.

Dan: Accounting by definition focuses on what has happened in the past and business owners are always front facing. You’re trying to figure out what tomorrow is going to bring, next week, next month, next year. You’re trying to grow the business in most cases. Now somebody may hit a spot where they say I’m okay to have a $5 million 20%-30% company and I absolutely go for that. If somebody’s goal is for their business I want to support them in that too. We’re not just focussed on those high growth companies because I understand how much value those smaller companies can bring to their local economies and even the national or global economies too, but if you get enough of those it’s the same thing as having a huge multinational, it’s just kind of distributed out across several places. But on the strategic side everybody has limited resources, especially at this level, so it’s figuring out what’s going to give you the most return on a potential investment. Whether that’s a monetary investment, a time investment, personnel, it’s making that strategic decision and also entrepreneurs the world’s kind of your oyster at some point. You can build your company however you want to and sometimes it’s aligning your reality with your dreams rather than your dreams with reality. It can be the other way around where you get to pick and choose what you want to do. You just have to choose to do it in a wise, well thought out way and I think the value of accounting and bookkeeping and the historical focus is that can inform the future. Unfortunately at this level for most companies it hasn’t in the past…I like to tell clients and my staff that the accounting and bookkeeping at least with the clients that we serve that’s somewhere between 40%-50% of the work. The other 40%-50% is educating them, helping them understand, then helping them make those future decisions based on good historical data and that’s a strategic piece we want to bring in. The other thing I tell them very often finance on the forward facing side, it’s not a crystal ball. The reality is, and I don’t know if you have the show “Who’s Line Is It Anyway” but-

Heather: -yes, yes we do-

Dan: -excellent. Well they always say where the games are made up and the points don’t matter. I say the reality of finance is kind of like that where the numbers are made up and the dollars don’t matter. I mean they do in the end but it’s somewhat somewhere where you’re not with finance, you’re not trying to have a crystal ball and try to forecast the future and if you miss then you miss on a dollar basis. What you’re trying to do is document your assumptions and project your assumptions out into the future and again the numbers are the language that you’re doing it in because when you get six months down the road and things never turn out like you anticipated them. If you don’t understand what your core assumptions were, and this is where that strategic perspective comes in, digging down one level deeper, we projected $3 million in revenues while we got down the road we hit $2.5 million. Okay, what happened. If you don’t know what your assumptions were you can’t test and you can’t iterate on that and make better decisions going forward. All you know is you came up a half a million dollars short. So you look at each of other, console each other, pat each other on the back, let’s do better next time team. No let’s not try to do better, let’s actually go out and figure out what changed and if we need to make some different judgements and perspectives based on that, what we had documented our assumptions were, it’s not just about dollars when you get down the road. It’s about understanding what you were thinking at the time and what you need to think differently going forward.

Heather: Yes, sort of a full analysis of what you were thinking bringing it back to what you actually achieved.

Dan: One of my favourite, and that got drilled into me pretty early in my professional career, there’s a partner in a public accounting firm that I was working for and he was big on the manufacturing and distribution side and I did a lot of work for him, but he was notorious for this. You’d come to him as a staff auditor and say you had to do an analysis on accounts receivable, like OK their accounts receivable increased 200%. Why? Well the initial answer that every staff gives is the revenue has increased 200% so it’s logical that their receivables have also increased by that much and he would instantly stop you in your tracks and say, no. You need to understand what kind of sales they had. If they had cash sales it’s not reasonable that their receivables would have increased 200% because they were cash sales. They shouldn’t have increased at all. If they were sales, you know, to one large customer who takes 90 days to pay they should have increased more than 200%. You have to understand not just the service level data you have to get down to sometimes three additional levels to really know what’s going on.

Heather: Absolutely, so what attracted you Dan to using Xero?

Dan: When I first tried to do this 4 – 5 years ago the cloud solutions out there were basically non-existent and if they were existent they weren’t very good. At least in the US, now my understanding is that the UK and especially Australia and New Zealand are 2 years in the case of the UK and 3 – 4 years possibly ahead of us on the cloud adoption rates than we are in the US, which is ironic to me but it is what it is. Somehow we’re lagging behind which is obviously frustrating and the reality is I’m in the middle of the United States, Kansas City, which is actually Kansas City Missouri, not Kansas City Kansas which tends to confuse people even in the US-

Heather: -so there’s two Kansas Cities-

Dan: -there are two Kansas Cities and Kansas City Missouri is the bigger one.

Heather: Okay, which one did the Wizard of Oz happen in?

Dan: That was out the middle of Kansas, or western Kansas, so-

Heather: -so not your Kansas-

Dan: -no, probably 300 miles from where I am-

Heather: -okay-

Dan: -although tornadoes do happen and the reality is that I’ve been in a house that had a tornado go over the top of it so that’s not an unusual thing if you live in this part of the country.

Heather: Yes absolutely. That’s so strange. So I forgot where we were at. I was asking you what attracted you to Xero and you were-

Dan: -and I went off on a tangent. My staff know that I’m bad about that and they very often have to redirect me and one of them, we have a running joke she calls it managing up, which I think is a great term, and sometimes that has to happen. They help focus me and I intentionally bring people on to the team who can do that.

Heather: Very good, very good.

Dan: So what attracted me to Xero? I spent some time working in IT and so I got some of the side of what was out there but when I first wanted to go out and do my own thing and I had this vision about what I wanted to provide to these early growth-stage businesses is as an advisor the reality is I could not do what I wanted to effectively 4 – 5 years ago because the solutions weren’t there. I didn’t have real time access to data. I couldn’t collaborate effectively. I couldn’t look at the same dataset that my clients were looking at and I could not for sure could not drive efficiencies and so I had to wait for the technology to catch up and it finally did that about 2 – 2.5 years ago. I came across Xero and I don’t honestly remember how at this point, I think I was trying to keep an eye on what was available out there as a solution. Obviously QuickBooks online had started to come round but nobody wanted to be any part of that if you were an accountant. At least at that point in time and one day I think Xero just came across my radar and I started looking at it and it had all the things I had been looking for both from a technical perspective of being able to single data set, access from anywhere and the real key for me was the API and integrations because I’d spent enough time in IT to know what the possibilities were with that, but seeing that ecosystem take off around that Xero core has really enabled what we are trying to do.

Heather: Yes that really interesting watching that from my perspective too. So Dan with your insight of being based in USA, what do you think that Xero needs to do to increase its market share in the USA?

Dan: Increase in the market share? Obviously Xero’s done very well outside of the US in pushing out the traditional businesses that have been in those spaces and getting the adoption rates brought up, in the US it’s really a brand awareness play and it’s hard because they are fighting the 800 pound gorilla in the room which is everybody knows what company that is. I don’t know if we say that on the podcast or not.

Heather: It’s alright, yes you can say that.

Dan: I was trying to be cognitive of this.

Heather: Yes I just don’t say negative things about companies but it’s the reality. The reality is the reality.

Dan: Yes and here’s what I think. I don’t think that Intuit has a bad product, I actually think QuickBooks desktop is very well done and they’ve iterated it multiple times if you like it, if you’re just doing bookkeeping it’s hard to get faster than the work you get done and I’m probably twice as fast honestly in a QuickBooks desktop environment as I am in Xero environment but what falls apart is the ability for me to effectively move data in and out of the system and to hook up solutions beyond just bookkeeping.

Heather: So it’s the API and it’s the ecosystem around Xero that’s gelling it for you.

Dan: Yes so what does Xero need to do in the US? It’s really just brand recognition I would say. The coast is seeing better adoption rates, the mid-west where I am at right now a few people in the tech sector have heard of it and the rest of it is just figuring out how to get the word out there about what the platform is. Some of it is, and they’re doing a good job at this, is building a partner network so that when people have questions they can reach out and talk to the partners, not just call Con at the Xero sales line. They’re very helpful at the Xero sales line but they’re not going to be the people that a potential customer is working with day in and day out, so I do love how they’ve structured their partner program and the kind of the freedom and the support they give us as we’re out there trying to serve clients and using it as a platform and I think that’s the one differentiator that’s probably going to in the end seal the deal for Xero is that they’ve built it as platform, as a modern development methodology, not as a product and that platform vs product you see it in all kinds of other areas. You see it for websites in WordPress where they created a platform, not a product. You see it with Shopify that they’re creating a platform and ecosystem in the eCommerce space and allowing people to have open access and build their own themes. With that it really is that modern development methodology that I think is going to be the game changer for them.

Heather: Absolutely, absolutely. Thank you for that. So Dan, how can cloud accounting solutions or business platforms assist business owners in having better visibility into their company finances?

Dan: Especially at the small and growth stage business level, financials that are 4 weeks old from the end of the month, you know, even if you’re really good at getting books closed in a traditional environment, if you get them closed in 15 – 20 days that’s fast and the reality is that’s 7 weeks past the beginning of the month that you’re reconciling, and small business moves much faster than that. It just does at this point and that’s one of the beautiful things about working with small businesses, they can be responsive to customer needs or market conditions. You don’t have to take; you’re not turning a battleship in the middle of the ocean with this. You can instantly do stuff and respond as you need to. The rise in Google Analytics you can see things coming down, you can set up alerting so you know if your traffic on your website is spiking, there’s all these things you can deal with.

Heather: Yes absolutely. I always describe small businesses like a windsurfer. As you said the larger businesses are the battleship and the small businesses this windsurfer that can just pivot and move quickly.

Dan: Yes, so 7 weeks in the context of small business is sometimes an eternity and the fact that they can have data current to within a week, 90% of our clients their books are current within a week, some of them sooner, and most of our clients we’ve had some closed as early as noon on the first of the month, the longest I think we’ve taken on a recurring client that we’re good at is the 9th or 10th and at that point that you actually action, and during the month we make it a point so that they’re up to date, they’re never 4 weeks behind. They’re current within a week excepting any month end entries, depreciation runs, things like that, but operationally of understanding things such as their margins, their burn rates and their cashflow, if somethings happening out of the ordinary with one of their expense line items that they know that’s happening real time, their cash balances. We really like to set up systems not just inside Xero but in some of the dashboard platforms we use you can set up alerting rather than having to log in every week or every day to check on the health of your business, you can run the business and know if something goes outside the parameters you set you can then manage by exception. You can say, hey as long as it’s between these two values I’m going to assume everything is going okay in the business and the business owner will continue doing what their core competencies are, which is usually sales and customer service, but if something starts to go out of line then myself and the business owner can be alerted to that, we can have a discussion, we can look at what’s going on, we can both log in and look at the dataset and that really is the value of the cloud.

Heather: So what is the platform that you’re using to notify you of the exceptions?

Dan: We use CrunchBoards.

Heather: Excellent, okay. So how long have you been using CrunchBoards?

Dan: it’s getting close to a year. I didn’t realise at the time I think they were, and I think that’s where I saw them and had that discussion and I don’t know where we were in the line-up of their move into the US market or even necessarily how far they’ve been able to penetrate into the US market at this point, but I was sold on the platform from Day 1 with the alerting, with the integrated forecasting, with being able to model things multiple different ways. Again it was data, it was accessible quickly and that’s what I was looking for in one of those solutions.

Heather: Excellent, excellent. So who is your typical or ideal client Dan?

Dan: We’re really right now focussed in three industry verticals. We work very heavily in the tech and start-up communities. We go and mentor the accelerators, we really love the tech starters and their give first perspective on everything and we’ve really tried to incorporate that into our business models so being involved in the community just for people to come up and ask questions. We work in the middle of a co-working space where there are 35 other companies, most of those tech driven-

Heather: -oh really, wow-

Dan: -do you have a co-working model in Australia?

Heather: Yes.

Dan: Excellent. I love the fact that we get to sit in the middle of these other companies that are doing things and as somebody who kind of loves tech stuff myself it’s fun to see what they’re doing but we feel we can also feel like we can be a valuable resource in the middle of our particular community just by choosing to office in close proximity. People will drop in, stick their heads in our office regularly and say hey I got a question and it’s part of being a good community member and we love being able to operate that way. Very often, and that’s one thing I think I would encourage other accountants to do is get out and get into the community and meet people. Not just networking as trying to drum up business and potential prospects, but networking as putting yourself out there and saying what can I do to help you. Sometimes you need somebody who can come in and do an implementation for you as a business owner and sometimes you just need somebody in the room where you can say hey, I have this question and I need somebody to give me a two minute answer. That’s being a good community member and that I think, being able to sit and do that, it’s great business development for sure, but it’s very personally fulfilling to say I’m just out there, available and it’s better for the community. That whole concept of a rising tide lifts all ships it’s definitely for accountants. We have a real opportunity to do that because this is an area that business owners usually, whether they actually don’t get it or whether it’s just a mental block, it’s very challenging to a lot of business owners that they just tend to stay away from them. They think if I can just go sell another unit, if I can just close another job, I can just bring another contract in the door then I’ll be okay but revenue is only half the business. The other half is your expense side and understanding both of those two together and being able to again coach and mentor a business owner, that’s where I think the value as accountants that we can bring, the reality is bookkeeping and accounting services are just being able to product the product is very quickly becoming a commodity. I think you had Blake Oliver on several sessions ago and he made that statement too that just being a good technician is no longer good enough. You now have to be a great communicator too and be able to teach. I feel pretty fortunate both of my parents are educators, my wife is an educator, I’ve kind of been steeped by just in that, just by the people around me, and so teaching and coaching comes fairly natural to me and I know that doesn’t for all accountants but if I were to encourage them to do anything it’s don’t focus on being a better technician as an accountant, especially if you’re serving the small business community because the accounting we do for most small business owners is not that technically complex. We’re not doing derivative investment accounting. What we’re trying to do is teach people how to use it and becoming a better communicator and a better teacher is really where I think accountants need to focus their energy.

Heather: Yes and with you saying I’ll just let listeners know that my next interview is with Geni Whitehouse who you may know Dan, who is an accountant but she coaches people in communication. Her business is “Even a Nerd Can Be Heard” It’s all about communication and how an accountant can communicate and what I really liked about what you just said there was the accountant saying just how can I help you. Not can I do your taxes. Not can I do your bookkeeping. How can I help you and I think a lot of the conversations can actually be just simply conversations. They don’t even need to touch on numbers because as an accountant you have such an in-depth knowledge of the mechanics of a business that just simply sitting down with someone and having that conversation with them, you may not actually be in a position to help them, maybe you are, but you’re actually able in a position to work them through their own problem solving process.

Dan: Yes I think one of the most personally fulfilling things that I’ve been able to do in the position with EBCFO is sit and dream with business owners and entrepreneurs and really stop and listen to their heart, listen to how they want to impact the world to do something that’s going to be good for the world in general and then be able to get behind them and say you know what, I can help you do that. Let me walk with you, let me not just provide a service to you, let me partner with you and help you move into what you’re dreaming of and it’s one step removed. I feel like the whole reason I’m here is to help other people do the reason that they’re here and I think if we can move into that as a profession we’re going to dramatically change both people’s view of our profession but we’re going to be able to impact the world in ways that accountants usually don’t dream about getting to impact. This is the business side of starting a business is the hard part for entrepreneurs. They can instinctively get sales most of them are creative people, most of them instinctively get marketing, they can always do it better and we all can do the marketing side of it better, but the business side is usually where they get tripped up. So we had this great opportunity to really just drive change and drive betterment for the world we live in by using our skillset and deploying that and using it to serve people well and I think it’s a fantastic way to live and at the end of the day you’re going to be far more fulfilled with getting to watch somebody else that you helped go in and even outgrow your services. I tell clients this is my goal. At some point you’re going to be too big, you’re going to need to hire somebody fulltime to do what we have been doing for you and if you do that I would love to help you find that person, vet them and watch you go run with that.

Heather: Fantastic-

Dan: -and see where you end up.

Heather: Fantastic. It sounds like you should be selling dream sessions. You need to get your marketing coach onto selling dream sessions for the businesses in the area.

Dan: It’s just so interesting to listen to what people dream of and I don’t know if it’s the case in other countries but in the US so very often people will talk and say I’ve always dreamed of doing this and running a business that can do this and it’s not just I want to run a business because I don’t want to have a boss anymore, I want to be my own boss, but most of the people who are going to be the successful entrepreneurs say man I see this, I see this need in the world around me or I had this vision for something I can do that really helps people but I don’t know how to do it and starting a business sounds so scary. You can sit with that person for 30 minutes and say let me tell you what it looks like to start a business. Running a business is hard. Starting a business is very easy. You can get a business in the US set up and operational and have your registrations done and your tax ID numbers and your Xero instants set up inside of an hour. It’s not hard. Running the business is hard but getting it set up, if that’s what you really want to do, I think so often people can do stuff as a side project. If you’ve always wanted to try running a business then try it and as accountants we can equip them to do that. Even if it’s just a side project for them. Even if they never go hire employees. Even if they’re just doing a small shop, producing a product and they’re just selling, all of those things are things that we can enable to happen.

Heather: Yes absolutely and I’m all encouraging of starting small like you started, I think you said you mowed lawns to start off, like actually get that concept of actually starting small and sell that business or move that business and start on the next one.

Dan: It’s actually better for a business owner to start small because the reality is at some point you’re going to make a 50% error as a business owner that’s going to cost you 50% of your revenues and I’d far rather see you make a 50% error with $1000 in revenues than $100,000 so start small. Start a side project. Start a side business before you move out and just try to go be the next Facebook or the next Google. Start small, learn your lessons and then iterate off of those and that’s a beautiful thing too.

Heather: Absolutely. So what are some of the key systems and resources that you recommend to your clients Dan?

Dan: Well obviously I tend to get people onto Xero at every chance. I’d say 99% of our client base are. There are two companies, one is on QuickBooks online and one that’s on an industry specific one for the construction industry but obviously I’d love to see them on Xero as a core. If I can get them on CrunchBoards when they’re ready for forecasting and cashflow management, I love that. If they’re on the eCommerce side I think there’s any number of honestly very good solutions for eCommerce and inventory management. You asked earlier about where our focus on our clients and I think I went on a tangent again, and I’ll tend to do that probably more as we get through the interview, but we do focus on three verticals. We focus on the tech space, we focus on physical product companies whether that’s eCommerce or distribution, whether that’s construction companies, somebody who’s building something and basically anytime costing comes into play when you’ve got multiple inputs and you have to figure out how much it actually cost you to provide the product or service and then we actually have a fairly good niche in the not-for-profit or NGO space and I think in particular that space is extremely well suited to a cloud based solution because those companies tend to be highly distributed, because you remove the profit motive you need much more granular data and you’re trying to track more things and you would probably wouldn’t in an equivalent sized for-profit.

Heather: Yes absolutely, they do require a lot of tracking. So you’ve mentioned Xero and CrunchBoard. Are there are any other solutions in the ecosystem that you’re using quite regularly for your clients or your clients are really enjoying that our listeners would benefit from knowing about?

Dan: The software stacks that we put in tend to be, especially in the eCommerce side, tend to be pretty extensive or on the manufacturing side so we’ve been recently implementing a lot of DEAR inventory and Stitch Labs, just depending on what particular sales channels they’re using on the eCommerce side. On the front side of eCommerce we’ve seen a lot of Shopify, WooCommerce, Bigcommerce, TradeGecko, we’ve had a really good opportunity on the construction side to start working with simPRO who is working on moving into the US market and addressing some of the challenges that construction companies face in the US markets. We have some specialised reporting and some of the tax side of things are a little different in the US than they are in Australia and New Zealand and them moving into the market has required them to make some modifications to their product. But it’s coming along and I’m really excited to see them start to move into the market because there aren’t really any good cloud based solutions for the commercial construction industry in the US right now. On the residential side, on the remodelling, inside there are some great products. There’s one called BuilderTREND that’s actually located fairly physically, geographically close to Kansas City in a town called Omaha, it’s called BuilderTREND and they’ve got a fantastic platform they built but it’s on the residential and remodelling side and not the commercial construction side. We use Bill.com pretty extensively. We’ve also looked at Rerun, a couple of other similar payment solutions. I’m trying to think of who else we regularly employ…Shipwire or ShipStation, TaxJar is a great one for eCommerce companies to automate the sales tax compliance issues that these companies face.

Heather: So can-

Dan: -ZenPayroll or now Gusto. ZenPayroll and Gusto on the payroll processing side. We use enough platforms that it’s hard for me sometimes to remember all the ones that-

Heather: -the ones that you’re using-

Dan: -yes.

Heather: Can you tell me, BuilderTREND does that integrate directly with Xero?

Dan: I believe so.

Heather: Okay I’ll have to touch base with them. That’s interesting-

Dan: -we always have opportunities to strongly encourage people to connect with Xero. We’re doing that right now with a CRM donor database for non-profit entities, there’s a fantastic cloud based with an open API but they have yet to connect with Xero. They connect with QuickBooks on both desktop and online but I haven’t been able to convince them to move into the Xero connection. One of my key employees in Kansas City here spent 10 years in the non-profit side as a fundraiser and then she decided she wanted a career change and came on-board but she has that background and she said the reality is the CRM, it’s called NeonCRM, and she said it’s not just donor database, you aren’t just tracking people who have given you money, you’re also tracking program participants, you’re also tracking people who have attended your classes or your conferences so it’s a really comprehensive systems and she said it’s one of the best ones she’s ever seen as a fundraiser and they don’t integrate with Xero yet so we’ve actually started working on coding in the early stage integration between Neon and Xero because we want to deploy it out to the non-profit clients. It’s super scalable, their price points right, I mean everything’s right for the ecosystem we just need to pressure them to actually finish the connection on their side rather than waiting for me to do.

Heather: Oh absolutely. That’s very interesting that you’re actually getting into the coding and the connection side as well. Excellent.

Dan: One of the advantages of sitting in the middle of 35 tech based companies is that there’s people running around who can answer all kinds of questions about that for me.

Heather: Very good. Absolutely. In one of the earlier podcasts I interviewed Peta Ellis from River City Labs and she was like, she just felt that your business could accelerate so much faster in a co-working space because you’re able to have those sorts of conversations and get those answers so much faster than you would perhaps in another environment.

Dan: Absolutely.

Heather: So Benjamin Dangel, founder and owner of Dangel Zone Business Solutions has a question for you. He’s located on Omaha, Nebraska and he wants to know about your struggles perhaps in entering a new market and if you did have one. He said he’s aware that you recently entered the Omaha market from Kansas City, which I looked on Google and it seems Kansas was about 3.5 hours away from Omaha. So did you have a struggle entering that market?

Dan: Yes, so it is about 3 hours away and in our part of the country 3 hours is considered a day trip. I regularly do that. It’s kind of spread out here. The population density is lower. To answer his question yes there were definitely some challenges. It was our first try to move out into a geographically removed area and hire in somebody remote on the ground, so the first problem was obviously finding the right person to move into that market. In our case we got very fortunate somebody read a write-up on us and called and said I love what you’re doing, I’ve been trying to do something similar, I’m a finance person and not an accounting person so I don’t know what platforms to use and struggle with all of this but I know how to talk to clients and I know how to do the analysis and I know how to coach them, I just don’t know how to put the nuts and bolts piece together. I said fantastic we’ve got the nuts and bolts figured out so let’s talk. So he came on-board and his task is to grow our brand recognition and that’s really when you move into a new market, that is the hardest thing and that is what takes the most time. We have a very grass roots and organic growth strategy that is primarily word of mouth, it’s getting out in the first mentality, it’s getting out into the community and being good community members first and being able to impact things from the ground up. So that’s a much slower growth track and I think in both my case and the employee that we have left in Omaha, brand recognition in a new market is a much slower uptake than you might initially expect. It’s not a 6 month process, it’s much more like a 12 or 18 month timeline to get fully up and running. I will say in the Omaha market we’re getting close to 8 months at this point. I had started looking at stuff before that, probably 6 months officially and then we had a few months of lead in before that. 4 kind of start-up hubs in the Omaha market were now partnering with 3 of them but it required us going up there, talking to people, showing up, not just walking in and giving a great sales pitch. You have to earn peoples trust when you move into a new market because they’ve never heard of you before. They don’t know if you’re going to stick around. They don’t know if you’re just a slick salesperson. They don’t know if you’re actually there to help and sometimes when you walk in and say hey I’m here to help they kind of look at you and think are you really here to help or you just here to close a sale. So that’s really when you move into a new market that’s really the think if you want to have a long term sustainable business in a new market you have to show up and be willing to put in the time to not just convince people and sell them on the fact that you’re worth working with, but also getting in and being a good community member, just like we have tried to be in Kansas City. We also want to get in and do the same thing in the Omaha market. We have opportunities and a couple of other cities in the mid-west here that we’re starting to see some traction and opportunities start to open up but it’s going to be the same thing. It’s going to be a 12 – 18 month process in each case to get in, really understand what that community needs, who we need to talk to. I think that’s a big thing that I learned when moving into a new market also. You can’t just go talk to potential clients because you’re time’s limited and your resources are limited and that’s a tough play, so you need to figure out who the potential referral sources are and go talk to them and have them help you understand what the community needs and then let them know that you’re also there to help. Not just you’re potential clients that you’re trying to directly sell, but you want to plug in and be part of the support network for a particular geographical area.

Heather: Absolutely and it seems to me, as you’ve said, generally the USA is a bit behind, business are a bit behind in terms of this cloud revolution, but it does seem that you are at the absolute forefront of the cloud revolution happening in the USA. So I would have thought that the businesses that you’ve gone through and put in these integrated platforms, they must be performing so much better than their competitors out there. They must be just leaps and bounds ahead of their competitors in terms of efficiencies, in terms of data, in terms of moving forward. Are you seeing that, is that what’s happening with them?

Dan: Sometimes yes. What I will say is what the business owner is doing what the business owner wants to do. In some cases that means growing exponentially and driving efficiencies and some cases, and I had a client tell me this, he said Dan the reason we have you on board is that I want to sleep better at night and I do. And that’s what he wanted. Sometimes we work with these tech companies and they’re very forward, they’re scaling rapidly, they’re 50 or 1000% up year over year, just completely blown up and other times it’s more traditional business models. We have a landscaper who has a very traditional business model does some lawn maintenance, will occasionally do some planting some perennials, planting some trees, maybe putting in a little retaining wall or something like that and in his case he’s not looking to have 500% growth but he is looking to have a viable business that has good margins that he can take care of his employees, that he is building something sustainable that’s going to be around for a long time and in that case because that’s his goal we’re able to help him do that. It really does come down to making sure your goals as the adviser are aligned with your clients goals.

Heather: Absolutely. I think that’s a great tag line for you. I help my clients sleep at night. Because it leads on to the next question I have for you. Here in Australia I know small business owners who wear with a badge of honour that they work 15 hours every day and they are absolutely exhausted, but they’re running a business and they’re proud of that fact. How do you go about changing the mindset of being proud of working these sorts of hours?

Dan: Work smarter, not harder.

Heather: Do you see the same sort of thing happening?

Dan: -oh absolutely and there are seasons as a business owner just like there are seasons in life. There will be times when you will work 15 hours a day but it should be for a set season, not for an ongoing this is just my regular life. We moved into a new market or we launched a new product line or we’re trying to do something different and it requires this high input. But you also want to see people, not just business owners, you want to see people and sometimes convincing a business owner that there is life outside the walls of their business, which as an advisor you have to do. So what are the hobbies, you give something up when you start a business, you have to cut stuff down. I get that, I had to do that myself. But you figure out how do you want your life to look. A business is just one component of your life. The work/life distinction does go out the door as soon as you become and entrepreneur and start a business. Then it’s no longer your work life and your friends and your hobbies, it’s all just life and so the boundaries are gone but even insight of that you don’t actually have to be working to the exclusion of everything else in your life and so some of it is just casting that vision for them that yes you want your business, you want to do what you’re dreaming of, but honestly as you’re advisor I’m not impressed that you just worked 15 hours for the past year. I’m honestly not impressed with that. Now you told me that you worked 15 hours to do this new thing and then you took a 2 week sabbatical and went with your friends or your family and did something you always wanted to do then I’d be impressed because that’s a life well lived.

Heather: Yes absolutely. It’s something that just recently I had a client and they contacted me and she’s like, I’m about to deliver a baby. I don’t think I can work anymore hours in my business. Come and help me and it was like okay. So we had like 2 weeks to completely set up her new business but it was like, she finally just realised she couldn’t do anymore of those 15 hour days and she had completely just stretched herself. I think you answered that question slightly. How do you juggle a business with your three adorable kids and a family? So how do you yourself juggle your business and work/life balance?

Dan: Yes it’s really setting the boundaries around what you believe is important. In my case I love having breakfast with the kids but I’ve had to understand that that’s one thing that if I have to choose that’s going to be the thing then, and my wife and I figured that out together. But what’s more important is that I’m home at a reasonable time. That I’m home at 5.30 at night so that we can sit down as a family, eat dinner together, I can play with the kids for a couple of hours before they go to bed, I can help them with their school work if they’re doing that and so sometimes the requirement is being at work at 5am, rather than sleeping in until I’d actually like to and then getting home after everyone’s in bed. And that happens sometimes. Again it’s seasons, but sometimes I will have to work until 10 o’clock at night but as a regular occurrence I walk out of the door of the office at 5pm and sometimes that has required me to be at work for a full half day before anybody else pulls in to the parking garage. You know I’m leaving for a meeting at 9am, I’ve already worked 4 hours and everybody else is getting to work. And it’s trade-offs right and I’ve had to come to grips with this too. Nothing is permanent in this case so if you give something up for a short time that’s fine. I’m not always going to get up at 4.30 in the morning or 5 o’clock, sometimes in my lift. Or if I do I’ll figure out how to get to bed by 9 so that I get a reasonable amount of sleep but you kind of set those kind of goal posts then you back fill them. I don’t know if you’ve heard the analogy of if you want to fit everything into your life you take a jar and you’ve got another jar full of rocks, one full of sand and one full of water. If you dump the water in, then the sand and then the rocks nothing fits. If you dump in the rocks first, then you dump in the sand and shake it down so that it fills the spaces between the rocks and then you pour the water in so that it fills the spaces between the sand then everything fits. So figure out what your priorities are, and they’re different for everyone, start with your biggest priorities and work down from there.

Heather: Yes and it makes such sense. How many staff do you have in your business Dan?

Dan: Because we have the advantage of being cloud based I’m able to bring on part time staff who work remotely. So we’ve got 2 full time people and actually in the office we’ve got here in Kansas City 2 part time people and we’ve got up in Omaha a part time person who is working on scaling so that he can basically create a full time job for himself.

Heather: Very smart, very smart. So what does the next 3 – 5 years look like for your business?

Dan: And this is fun. In the 3 -5 year track, the near term let’s say 1 – 3, it’s continuing to grow. I expect to add one more physical location probably within the next year. We’ve got some movement there. It’s continuing to just grow the client base. I anticipate focusing on those three core verticals that we’re on right now for probably the next 18 months and then maybe starting to explore if there are some other ones that would make sense for us to move into to. I know the advisors that focussed on one particular area, for example Scott and Patti Scharf of Catching Clouds. All they do is eCommerce and they do eCommerce so deeply and so well. I talk to Scott fairly regularly and I love their model because if you have an eCommerce company that is scaling there is no one else in the US that you should be talking to. You should go talk to Scott and Patti Scharf of Catching Clouds

. I don’t actually call him Scotty. I don’t even know if he goes by that.

Heather: Absolutely I think-

Dan: -there are other people who maybe they’re great with construction or maybe they’re great on a distribution company or maybe they’re great with, like Jason Blumer in Creative Services, you know, figuring out that niche and so I expect us to stay with these kind of core verticals for right now and look at expanding that. On the longer term plan it’s kind of personally, my goal is to continue hiring accountants that have, hiring some accountants that can do the work, find the personality type that loves to have a box and a framework and show up at the beginning of the day and say hey, I’m here what are the tasks for the day, what can I get done and being able to check off the box and walk out at the end of the day and know that they had got through everything they had planned on doing, that that’s it. You know there are personality types, it’s not my personality type, but it’s a great personality type to have because you know that those people, I have a couple of those and I never worry about things getting done. There are things no longer even cross my mind because I just know that they’re going to handle that so we’ll continue to hire those people and create a great team there. I’m also actively looking all the time for people that I believe have both the personality and the technical background to be able to become CFOs for these small growth stage companies that they can handle the ambiguity of the entrepreneurial world, that they can facilitate 10 – 15 companies as the CFO at various levels and training them on what it looks like to provide services. In the long run in say the 5 – 10 year track I no longer plan on being a CFO. I plan on being someone who trains other CFOs because I think this is such a need in the industry to get people in the door who can help with that stage of company and so I really want to as a long term play for me personally be able to move into enabling other people to provide that service. Which means I have to figure out how to provide that service well in the first place then figure out how to make it repeatable and then figure out how to teach other people to do it. But that’s the track we’re on.

Heather: Very good. So how can our listeners get in touch with you Dan?

 Dan: A couple of ways. Probably email is the best dan@ebcfo.com is probably the easiest. They’re more than welcome to ping me on Skype. If they want to just do a, they can find us on the website, there’s a contact field on our website www.ebcfo.com I’m always open to phone calls or text if anybody wants to do that.

Heather: Very good. Thank you so much Dan for sharing so many insights and experiences and your knowledge with us today. We’ve really appreciated it and I’m sure all the listeners will really grow and be able to take something away from this interview.

End of Transcript

Resources mentioned in this interview

Scott and Patti Scharf of Catching Clouds

Connect with Dan Schmidt

About EBCFO
You are busy running your business, but what you really want to do is create and grow, not focus on the day-to-day operational grind. That’s where we come in. EBCFO is a virtual CFO firm that helps start-ups, non-profit organizations and e-commerce companies at all stages by offering bookkeeping, accounting, cash flow management, payroll services and CFO services.

We help business owners like you move beyond putting numbers in buckets. We are not just another accounting, consulting or advisory firm – we make sense of those numbers so you can make smarter business decisions. Focus on what you love with EBCFO.

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P.S. Loved this episode? You’re going to love listening to Geni Whitehouse on episode 36 who talks about the importance of accountants communicating to their clients – so their clients understand them.