Best Metrics for Financial Advisors

Nikole Mackenzie, founder of Momentum Accounting, shares hard-won insights from building a successful advisory practice that transforms struggling businesses into thriving enterprises. Through real client examples, she breaks down how to move beyond traditional accounting packages to deliver meaningful business outcomes, including her approach to pricing, profitability targets, and client assessment frameworks. Nikole provides practical strategies for upskilling team members and implementing advisory services, while emphasizing the importance of focusing on business outcomes rather than selling products.

• (00:00) - Best Metrics for Financial Advisors
• (00:47) - Guest Introduction: Nikole Mackenzie
• (01:10) - Nikole's Background and Experience
• (05:17) - Defining Advisory Services
• (14:10) - Challenges and Solutions in Advisory
• (17:18) - Importance of Profitability
• (39:50) - Niche Focus in Accounting
• (48:47) - Training and Upskilling in Accounting
• (51:34) - Final Thoughts and Contact Information

Learn more about Peerview Data
https://www.peerviewdata.com

Connect with Nikole Mackenzie
https://momentumaccounting.com
https://www.linkedin.com/in/nikolemackenzie
https://linktr.ee/nikolemack

Connect with Glenn Dunlap
https://linkedin.com/in/glenn-dunlap

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Creators & Guests

Host

Glenn Dunlap

Glenn Dunlap is the Co-Founder & CEO of Peerview Data

Guest

Nikole Mackenzie

Founder and CEO of Momentum Accounting

What is Best Metrics?

Welcome to Best Metrics, where we dive deep into how industry experts evaluate financial statements and the key metrics they use to help their clients improve. Each episode, host Glenn Dunlap sits down with leading professionals to discuss their analytical approaches, the insights they uncover, and practical advice you can apply to your own practice.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Katie: Welcome to the Best Metrix podcast. Each episode, we meet with industry experts to discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights and processes into your own practice. Thanks for listening and enjoy this episode.

Glenn Dunlap: Hello and welcome to another episode of the Best Metrix podcast. Today [00:00:30] we're going to flip the script. And normally this podcast, we we focus on metrics that are used in a particular industry from the perspective of an advisor to a client. And today, we're going to turn it around and dive into the advisory metrics and best practices for the advisor themselves, namely you. So here to shed some light on the subject is the founder of momentum accounting and popular newsletter Profit Points. Nicole McKenzie. Nicole, welcome to the show.

Nikole Mackenzie: Hey, Glenn. Good to see you again. Since Xerocon.

Glenn Dunlap: That's right, that's right. It's, um. [00:01:00] We had the chance to meet up when we were down in Nashville, so that was great. Great to meet you there. So I've got a little bit more here to let our users or listeners know who you are. So with 15 years of experience in the accounting profession and a decade of that advisory and advisory, Nicole runs Momentum Accounting, which is based out of San Francisco, and she's a podcast host in her own right of the cash flow show. Nicole also provides the Profit Points newsletter, which offers free advice for entrepreneurs and the financial experts who advise [00:01:30] them. Nicole has been in the trenches of small business accounting from a from every angle. She started as a tax and audit CPA. Now she's running her own rapidly growing firm. She's helped hundreds of business owners either overhaul their outdated paper driven systems or build fresh ones from scratch. So Nicole, welcome to the show and thanks again for joining us.

Nikole Mackenzie: Yeah of course.

Glenn Dunlap: Yeah. You want to share a little bit with us about what you're doing with momentum?

Nikole Mackenzie: Yeah. So I've been running momentum for eight years. We've got a really awesome team [00:02:00] now. Three. We've got four US team members and then three in the Philippines. And so primarily we work with businesses that are between 1 and 10 million in revenue. So they've outgrown the I just need my books done to file a tax return. But they're not quite ready for a full time in-house controller. So think about an accounting department. You've got bookkeeper, controller, CFO, payroll, AP, R. And so we really come in and plug in to our clients businesses. [00:02:30] And depending on what in-house resources they have, we come in and complement that on a recurring basis. Okay.

Glenn Dunlap: That's great. Who are most of your clients? What kind of businesses?

Nikole Mackenzie: So we have three main types of businesses we work with. And to make it simple, they either sell sell time, they sell things, or they're getting ready to sell something. So what I mean by that is a lot of B2B service based businesses, marketing agencies as one of our niches. Air it, those types of businesses. And then we [00:03:00] have some e-commerce businesses and then we have a lot of being in the Bay area. We get a lot of tech startups too. So a lot of SaaS channels.

Glenn Dunlap: Sure.

Glenn Dunlap: No. That's great. That's great. And uh, serving them. We met at zero, so I'm sure you're using zero. But what else? What other apps and things are you typically using to serve your clients?

Nikole Mackenzie: Yeah. It's funny. So when I first started momentum, I had come from my CPA firm and they were one of the early, uh, early [00:03:30] adopters of the CAS model. And at that time, there was very few options when it came to Tech Stack. And so now over the last eight years, there's just been an explosion. But our core app stack is QuickBooks Online and Xero. We love Live Flow, and Live Flow is a tool that pulls live QuickBooks Online and Xero data into Google Sheets.

Glenn Dunlap: Yep.

Nikole Mackenzie: Yeah. Or now they do with Excel. We love rich reporting. I love that best metrics [00:04:00] is such a good tool that we can combine with those right. Um bill pay lots of bill pay solutions ramp Divi Bill.com relay for banking. Mercury for banking. Lots of lots of different apps in the ecosystem. I could go on and on about that.

Glenn Dunlap: Sure.

Glenn Dunlap: And hard to keep track of, right. I mean, there's just so many things that are out there. Yeah. But I have some really good fits, you know, for specific clients and types of clients and things they're trying to accomplish. There's a lot of, a lot [00:04:30] of different things you can do to build this stack out that's specific to them. Well, as we were talking about this, though, the thing that, um, was sort of close to, to your heart, what you were thinking about was, you know, how can we help some of these advisories, you know, folks that are setting up advisory practices or or managing that. And it's a it's a it's an interesting thing because you mentioned, Cass, you said the term Cass and client accounting and advisory services and a lot of for a lot of people, they focus on the client accounting piece, but they don't really get to the advisory element of this. So when you said, hey, do you want to talk about advisory? [00:05:00] I'm like, yeah, let's talk about advisory. Because I think that's close to us as well, thinking about, you know, best metrics and how do we help advise these firms? I mean, that's that's who how do we help the clients who are advising their clients get to their ultimately, it's really what we're trying to do. And I think this is a great topic. So, um, you know, one of the things we wanted to we should probably do first is sort of define what is advisory, what is, you know, what are we really talking about in this space?

Nikole Mackenzie: Yeah. So I can tell you a story about why why I care about [00:05:30] this. So when I early on into my business, when we were just doing a lot of general accounting services, I had a client who was a security staffing company based in San Francisco. And when we came on, it was a family owned business started by the dad in the 1970s. And one of the daughters took it over and she started embezzling from the business. And so mom, who is the majority owner of the business, who's 86 at this point, decides to take the business back over [00:06:00] along with the other daughter. And so when we came on, they're on the verge of bankruptcy. It's like every payroll is. Is this going to be the one? They had no financial statements. They were going through a class action lawsuit. They're going through the lawsuit with the daughter. And I'm coming from public accounting. You know, I knew how to do a little bit, but it was still new to me. And so we came in and we implemented zero. We implemented Bill.com. We got put together financial statements for them. Um, she was they were burning [00:06:30] cash every month because they were unprofitable. So we work with the client to go through her pricing and show her, you know, they had an updated pricing and probably they were the lowest, lowest rates in town. They always brag about that. Their clients never left. It's like, yeah, Judy, of course your clients never leave.

Nikole Mackenzie: You have the lowest rates in town. So we had to start showing her the numbers to get her to actually take action because she was so afraid to raise her prices. Another issue we found as we're looking at. So we start looking at her margins, [00:07:00] right? And we start noticing that her gross profit margin is really low. So we drill down into that and we say, well, why has your health insurance, as a percentage of your labor been going up so much? We find that there's an operational issue that nobody had been taking the employees off the health insurance plan when they left. So they were paying $15,000 a month in insurance costs for employees who never work there. Right. So we're taking the financials and we're backing into, okay, what [00:07:30] operational issues are driving those. And another thing we found when we started putting the financials together is that one of their employees had been stealing from them. So he had racked up $400,000 on the American Express card. We find out he's been looking at webcam girls on the internet with with the company Amex card. And so, um, another thing we help them write is they're, they're they had a really long cash flow cycle, so they paid their employees weekly. But their customers, [00:08:00] they weren't using any electronic payment methods. It was like send out the invoice in, in, not even out of the accounting system because they had QuickBooks desktop put it hundreds of invoices they were sending out through email, not tracking them.

Nikole Mackenzie: It was just complete chaos. And so it was taking customers like up to 60 days to pay. Meanwhile, they had to pay their employees every month. So we help them implement electronic payment processors, get paid up front, all of that. So all in all, we ended up between increasing profit getting that are in their door and then ultimately they were [00:08:30] able to sell their business, a business that went from zero value, almost going bankrupt to being able to sell for $3 million in addition to a couple extra million between increased profitability and that cash flow that we got in her bank account. So it wasn't until after I went back. So we were a couple years late. A couple years later, we had we were redoing our website and one of our, uh, contacts at the marketing agency says, Hey Nicole, do you have any good [00:09:00] case studies? And I said, yeah, you know, let me let me go back and look at this. And our firm had changed a lot in that we were trying to move more of this advisory focus and more outcome driven mindset. And so I just looked at it from a different perspective than I did at that time when I was new and I started putting it wasn't until then I started putting the numbers together and realized that the dollar value that we had created for that client, um, and actually after they sold the business they were able to buy, Judy [00:09:30] had always wanted they always wanted to own a condo in Hawaii.

Nikole Mackenzie: So she was able to buy the condo, and then she let me go stay there, you know, as a thank you for helping her through that. So and and for me as an advisor, that's why I do what I do. And that's why I'm so passionate about this, is, I think a lot of accountants think of advisory as a thing that they sell. A lot of people in the industry will talk about how, you know, sell them the forecast. That's advisory sell a metrics. And it's like no forecast answers [00:10:00] the question can they hire an employee or can they make this investment. Looking at metrics and KPIs, KPIs helps them understand if their business is on track or off track, so they can make changes. And so advisory is not about selling things. And I think as accountants, we're so used to deliverables that it's hard to get out of that mindset of it's not about selling a thing, it's about selling outcomes. And it's our advice. It's things that we've learned throughout our career, and it's just helping them make better decisions, just [00:10:30] being helpful. And so like for me, when I think about advisory, it's it's not about packaging something up and trying to get fancy with it. It's just being helpful for them. And then we might use tools to help facilitate those conversations. Right. Um, but yeah, it's really about the outcome for the owner.

Glenn Dunlap: Yeah. And and having them define what the desired outcome is oftentimes. Right. I mean, you gave the extreme case where they were, you know, in that situation where they, [00:11:00] you know, they were their back was against the wall. And you you helped them to avoid some of the worst elements that they could have, could have faced. But, you know, many business owners are just, you know, day in and day out, just putting out fires and they're not really able to take a step back. And nobody's asking them, what do you want? What's the outcome you're looking for, and how do we help you achieve those things? And that's, um, starting at that place. That's a that's a great place to, you know what? What are you aiming for? You got into this business for a reason. What was it. So let's [00:11:30] let's help you to achieve that. So I'm assuming you start with some of those kinds of questions with somebody. Obviously, when your hair's on fire, you got to get them, get the fire out first, but then the then, then you can be more proactive and start looking at, you know, those alternatives. Right. So.

Nikole Mackenzie: Right. So that's one thing we changed about two years ago. We started doing a financial health assessment during our sales process. So I'm primarily in the sales seat at momentum. I don't do much of the delivery anymore. I've got an amazing team that I'm [00:12:00] able to hand that off to. But I noticed by changing the conversation during the sales process, the, um, close rate went up and then also the the price we were able to charge just by reframing that conversation, starting with what they care about. So for a financial health assessment or during that process, um, you think about cash flow. Uh, there's really like four areas we look at during the sales process. So one is profitability. [00:12:30] So I can quickly see over the last 12 months what was our net profit margin. And I started tracking this metric over the last 12 or the last year, I for every client I talked to, I write down what their profit margin was. And four out of five clients that I spoke to over the last year struggled with profitability. And these are clients coming to us that weren't necessarily looking for profitability or cash flow consulting. They're just looking for basic accounting services. [00:13:00] But it just shows you like how big of a challenge it is.

Nikole Mackenzie: So we're looking at profitability. I'm talking to them about their tech stack. I'm talking about who they have in their accounting department. Currently, a lot of business owners don't understand what a controller does versus a CFO versus a bookkeeper. And so there's a lot of education. And then, um, talking to them about why they use their financial statements. Do they use them to manage their business? Do they have an investor? Are they trying to get an investment? Do they have a loan or trying to get a loan? Do they want to sell their business? So again, we're [00:13:30] reframing the conversation with outcomes to them and what their goals are. Do they want to grow the business. Do they want to hire people. And then our service offering. We don't do packages and we can get into packages and pricing, but we don't do packages at momentum. A lot of people like to think packages and value pricing and all that. But really as an advisor, I'm coming in and I'm identifying what they need, what gaps they have in their business to achieve those outcomes and then giving them a custom solution. Well, it seems custom, but it's, you [00:14:00] know, the same thing that we're doing for other clients as well. Just a different scope.

Glenn Dunlap: Yeah. Well, yeah. And everybody tells you you got to have good, better, best pricing on your, on your website and all that stuff. And that just seems like, you know, it's, it's games that you're playing with people. But something you said I think really, really resonated with me. When you talk about four out of five are struggling with profitability, and those are numbers that you're looking at. And people weren't necessarily focused on that. And I think the thing one of the reasons it got me into this business was, [00:14:30] you know, and doing benchmarking and providing tools like that was that you would oftentimes hear business owners quote something like, well, you know, you're not supposed to be profitable in the first five years, you know, or just things, just rules of thumb that people have been throwing around for a while. And you think, well, why? Why accept that? Like, why why would you just not be profitable if there was an opportunity to be profitable? But you just if they if they've mentally blocked the fact that they could possibly be profitable, then then [00:15:00] you're starting from a place of, you know, you're never getting to that to that line. So I think having an advisor or having, you know, benchmarks that kind of help dispel some of those myths or rules of thumb or adages that people throw around, you know, um, that I think are really good.

Glenn Dunlap: So, you know, having somebody that takes a look at it and goes, you know, no, you turn a couple of dials and you're you're profitable or more than profitable than your peers. I mean, it's it's sometimes it's just that simple. Um, but if you have in your [00:15:30] mindset that, um, you know, that we can't grow any faster than 5% or that people, it's our industry we won't get. And then in a pay, you know, payroll industry or placement industry and we're not going to our industry. We won't get paid faster than 60 days. Well, there are tools now that will allow you to. So, you know, if you just accept a lot of those old things, sometimes it's just, you know, sort of smashing that paradigm and helping them see past that. So I love when you were describing that from an advisory standpoint, just thinking about, well, there you could be just that close to being profitable, [00:16:00] just, you know, a little nudge, a little little push, little get, get some of that line.

Nikole Mackenzie: So, so.

Nikole Mackenzie: I created this thing called the cash potential Calculator that I use during my sales process. And it's actually a live tool I made recently. So we can link it in the show if anybody wants to check it out. But basically what it shows them, it shows. So you put in the last 12 months what their profitability and net profit was, and then you put in what they could be. So I usually put in 20% is what I recommend most small businesses should be at. And then you plug in how long it takes customers to pay on average. So let's say it's taking [00:16:30] 45 days and then you put it in, hey, You work with us, we're going to help you implement some technology so you can get paid faster. Um, we're going to, you know, help advise you on monitoring days to pay or days to get paid. So it's going to be 15 days is what we recommend. And then it spits out a number. And then the third lever is controlling cash going out. So you don't have an accounts payable process. Guess what. We can help you implement an AP process. That way when bills come in you're not just paying them randomly. We can control cash going out. [00:17:00] And if we need to implement a cash flow forecast to show you what's coming in and going out. Now we have this whole system, and now you have a million more dollars, and you show them the actual dollar amount that spits out a million bucks that you're going to have in cash flow by working with us. And we're going to we're going to charge this much, which is a fraction of that. And right away it's like, oh, that's a no brainer. If you're going to infuse an extra million bucks into my business, of course I'm going to pay you 60 K a year or whatever you're going to end up charging to implement all that, right?

Glenn Dunlap: Right. Makes [00:17:30] perfect sense. And sometimes it's it's sometimes it's the, sometimes it's things that business owners know that. But they haven't been able to implement or their gut tells them that it's, um, sometimes it's validation of the things that they, they're feeling, um, or that they were just in denial of some of those things. But the other part of it is, is that as a business owner, you get so, you know, wrapped up in the day to day that oftentimes just the those are the you're [00:18:00] the, you know, the barefooted cobbler's child, right? You just are you're not able to take the time to look back and, and make those changes or push those things across the finish line. So, um, you know, that that can be worth an awful lot to have somebody that's focused on that. So, so from an advisory standpoint, you look at it as a means of helping firms to identify, you know, what are their desired outcomes, and then working on a plan to help them to get to, you know, to achieve those outcomes. Is that is that a fair distillation of [00:18:30] of what we just have talked about so far?

Nikole Mackenzie: Yeah.

Nikole Mackenzie: That's right. And then so after we get through the sales process, we onboard them. So I've identified what their challenges are, built a proposal around that and built an onboarding process around that. And so that gets handed off to our delivery team. And one thing we do during our onboarding process is we spend a lot of time understanding the client's business model. And so like for an example, we have one client that has a software component, a hardware component and a service component [00:19:00] to their business. So they've got three types of different business models in one. And when they came to us, when you looked at their profit and loss statement, oh, and they're and they're developing another software. So they've got R&D that's going on. And so it's like trying to understand what's the margin on their professional service line versus their SaaS line versus their hardware line. Um, and when you look at their profit and loss statement, there's really no way of making any sense of what the business model was. And so when we onboard a client, we're going through [00:19:30] their employees. We're understanding who does what. Really understanding their org structure and their business model so that we can start telling that story through their PNL. Um, a lot of our clients we work with are agencies. And so for professional service businesses, we have this rule called 50 3020 rule. And what that rule is, is of your revenue that you bring in no more than 50% of it. We want it to be spent on your delivery costs. So your delivery costs are the people directly servicing [00:20:00] your clients, the software that goes in that contractors. Right. And then we have 30% left over that we can spend on overhead. So that's your accounting fees.

Nikole Mackenzie: That's your software. That's your admin staff, CEO salary, facilities, utilities, all the things that infrastructure. And then where should be left with 20%. And so we work with our clients to help them start formatting their profit and loss statements so they can see most of the time their 50s is going to be off, which means they're [00:20:30] not pricing high enough or their employees aren't utilized, or they have inefficiencies, inefficiencies in delivery. And then as a next step to this and why, I'm really excited I met you at Xerocon is now we can start getting more granular on particular industries, because I've built this framework based on all professional service, uh, businesses fall in this industry. Okay. Well, now I can get more granular if I get an IT company that comes in. How much should they? What [00:21:00] should their margin be on their labor costs or their direct labor costs? Versus what should they be on their markup on whatever they're reselling to their clients. Right. So there's different nuances now within a particular industry that we can then go to, um, go to best metrics, see what they should be spending on marketing or what they should be spending on their facilities. And so it just levels us up. And so part of the financial health assessment is I can start to put those numbers in. So like let's say in that [00:21:30] example I get an IT company I can go to best metrics, I can go plug those numbers in to those groupings. Then I pull in their data from Qbo, and then I present that to them during the sales process, like, right. That's going to be a really powerful conversation and just level us up compared to the other people they're shopping.

Glenn Dunlap: Yeah for sure. Yeah. It changes the conversation when you have, you know, the peer data there to be able to to share with them and to kind of give them that like [00:22:00] you shatters that paradigm. Right. It gives them that that view that says that. Oh, by the way, you know, I we're overspending in these areas or we're under under achieving in certain other ways. And yeah, it helps you identify it right away.

Nikole Mackenzie: I was going to say I apologize, keep saying best metrics instead of peer reviewed data. Best metrics is the title of the podcast. Yeah, yeah. No that's right. Data. The data the.

Nikole Mackenzie: The the name of the the well, you should change the the name of the company to best metrics. Now it probably should.

Glenn Dunlap: Yeah. And that was going through [00:22:30] my mind as you were saying it. Yes, I think it, it flows off the tongue better. Yeah. Uh, and we also get confused. People say peer review data, which also just drives me up the wall. So, uh, but that's, uh, that's a conversation for another day. Well, anybody that's listening to this that's working with marketing agencies, call me.

Nikole Mackenzie: Well, peer review data is also like I'm sure you know, people have said this to you in audit if you own an auditing firm. Yes, there's peer reviews where they have to like, go [00:23:00] review each other's work. But yes.

Glenn Dunlap: So so I was joking with somebody that, you know, when firms say peer review that, uh, you know, something about doing audits or something like it. That's right. And we're here for your, your three year checkup. Here's the invoice. You know, that kind of thing.You know,

Glenn Dunlap: It's every.

Glenn Dunlap: Three years they have to get the peer review. So we're here so you can pay us now. Um, but I think um, but it's, that's great that, you know, it's a, it's a great way to use the benchmarking [00:23:30] data as a way to start that conversation. And I love the financial health assessment as a way to, to start that conversation with somebody and say, hey, here's how you, you know, how you're doing year over year, but how you're doing against your peers, that's a great that's a great way to start there. So I think, um, you know, that that works well. Do you charge for the financial health assessment as you're going through that with them?

Nikole Mackenzie: I go back and forth. So I was charging for a while and then I stopped. It really just depends on sometimes I'll charge for it if I think they're [00:24:00] like tire kicking or they're just trying to shop other prices to come back. Yeah. Um, to, to try to negotiate with their current provider. So if I get on the call and there's nothing wrong and I'm like, hmm, but, um, but now I don't, because you know why in in what we do, if we're selling something for $5,000 a month, we really have to. You might have to have three calls with that client. It's a longer sales cycle because you're building trust with them. And so it's an opportunity to provide quick value and show how you're different than another [00:24:30] firm.

Glenn Dunlap: Yeah for sure. And chances are they're not getting that anywhere else. I mean what's the stat. There's something like 86% of the people that leave their account and leave because they weren't getting proactive advice. And so if you're bringing something like, you know, an assessment like this to them and that's that's most of the time what they're looking for, somebody that is going to pay attention to them and give them that kind of assistance. So that's great.

Nikole Mackenzie: Yeah, I always tell my team I'm like, everything you do, think about why [00:25:00] it matters to the business owner. Why are we doing this? Because we get so stuck on the inputs and we start thinking about like, why are we doing this in the first place? Why does the business owner care?

Glenn Dunlap: Well, you know, it's a great it's a great point. And I think it's, um, you know, you mentioned that doing a forecast and that you can offer these as packages, you can offer a product you can you can push products on people that. Um, for the sake of selling another product. But when you're really getting down to. What are they looking for and how do you how do you go about helping [00:25:30] them solve that problem? That's really where you where the the benefit is to them, right? If you say, you know, we've done the analysis, but let's do the forecast to help you see where you can, what levers you can pull, and, you know, identify when we do help you expedite your cash cycle that, you know, what are you going to do with that? Are you going to use that to pay down debt? You're going to use that to invest in equipment. Are you going to use that to pay for R&D? You're going to not have to go out and raise capital that you thought you were going to have to raise, or something like it becomes [00:26:00] a it becomes a tool for the the owner to then understand, you know, this is this is how I'm going to be able to effectively achieve my desired outcomes. When you when you help them see that. Right? I mean, so that's um, so I'm just we were going to talk about product and pricing. And I'm thinking about, I understand, you know, not pushing products and pricing, but if you're going to but there are at the end of the day, there are deliverables. So there's something that you've got to figure out how to say to a client, let's do this, let's do a forecast. But here's the reason we want to do the forecast, not because I want to sell [00:26:30] you something, but here's the value that you're going to get out of that forecast. Right.

Nikole Mackenzie: Yeah. Yeah. And I can tell you how how I think about pricing because it's I've been doing this for eight years. We've had a lot of different iterations. Very beginning was doing hourly pricing, then moved to fixed fee. And then one day I was like, screw this, I'm going back to hourly. But we didn't we didn't. But it, it, uh, it's a little bit of a science, but really I think, yeah, you can value price. Yeah, you can package things. But fundamentally the mistake [00:27:00] I see not only my clients make, but others in the accounting industry is not understanding what it costs to deliver the service versus the revenue. Right. So I talk about this thing called a walkaway price, which means what's the minimum amount that you need to make on this client when you're pricing them that you will accept them as a client? Um, and then if we think the client will pay more, we can value price them. But we need to know what our walkaway price is. And so [00:27:30] the magic number here is 3.5.

Glenn Dunlap: Okay.

Nikole Mackenzie: Okay. So if we were to go through and take any one of our employees and take what their hourly cost is. So as an example, if an employee costs $104,000 per year and we divide that by 2080, that's the amount of hours in a year we get a $50 an hour employee. So we need to multiply that employee cost by 3.5. That's $175 an hour. If [00:28:00] we want that to trickle down to a net, at least a 20% net profit margin on your profit and loss statement, this is how the math works. Okay. So a lot of mistakes I see people make is they don't charge enough for the work because they want more revenue. So if we again, if we let's say, let's say one employee costs $50 an hour and and you're going to tell me, Nicole, my clients would never pay that. Okay. What do we need to do then? We either need [00:28:30] to reposition ourselves so that our clients are willing to pay more, whether that be by niching or good marketing, good case studies, or we need to lower our cost. So what we've done at momentum is we've offshored, which is common in the industry. And so we've got some of our US employees who are really expensive. And then we've got some offshore employees. So what we what I do is instead of looking at it on a okay, who's going to service this client basis and try to do that, I just look at, hey, this client, [00:29:00] it's um, you know, how how many hours do I think it's going to take over it all? And what's our average rate that I want? So I take all my clients together, all of my team members together, their average cost, average bill rate I want to use.

Nikole Mackenzie: And then that's the average hourly rate I want to make on my client. So then every month we go through and we take total hours spent on our total billings for the client, divided by total time spent. And [00:29:30] that gives us the number. And we have a target number that we want to hit. So it's really simple. And then that's an indicator that if we need to go rescope a client. So let's say they're constantly or making a really low average rate on that client. Then we go investigate. And it could be that we're onboarding them so we don't care. We're going to eat the cost. It could be that scope has changed. It could be we just underpriced. And so we have to go figure out, you know, it's we're not going to go directly to the client and try to rescope them, but we are going to talk to the team first to try to understand [00:30:00] what went wrong. Mhm.

Glenn Dunlap: Mhm.

Nikole Mackenzie: So that's the way we do pricing. Um and then as far as like packaging. We use go proposal for our um, for proposal software. And what I'm doing is I use like a accounting department accountability matrix. So I'm going through with okay, who on your team is doing what. What is our team doing. So foundationally those are like the core services [00:30:30] of like okay, you guys are doing invoicing, we're doing AP, we're doing the month end reporting. Then maybe we're adding on forecasting or whatever on top of that, but really understanding what they need and then building a scope around that, that I'm estimating how much time it's going to take. That's our walkaway price. If a client a client's coming in and they're complaining about their existing service provider or they have an in-house employee and I know they're willing to pay more than that walkaway price, then I can increase it based on what [00:31:00] I'm seeing they're currently paying or whatever. Right. So that's what we're value pricing or that's why we're using other indicators. But at least I know what I need to do to make money on. And that's the key point I think a lot of people miss is they're just they're just charging whatever their friends are charging. Um, but yeah, that's the way we approach it. And we've never had issues with profitability.

Glenn Dunlap: Yeah. No. That's good. That's good. It's, um, I like the I like the, the walk away pricing. Um, and [00:31:30] thinking about, uh, thinking about pricing from that standpoint, I think that's a, that's a good number. And I think there's, there's another maybe a I see how you treat this too, um, using the forecast as an example. Uh, you know, there's, there's going to you're going to estimate how many hours it's going to take you to, to build the forecast. You're going to look at the costs and do those the hours and you're going to you would look at that as a pro if you were to scoping it as a project. Right. So you're going to say this is going to take me 20 hours [00:32:00] and you're going to multiply that times the 175 and come up with what you think the price is on from that perspective. The flip side of that is that as a business owner, you're also looking at that and going, what's the value in this for me? Like, what am I going to get out of this? So if I see if my math is right, it's 30, is it $3,500, 20 hours times 175? I don't know if that's right. Um, no, it's not quite right.

Nikole Mackenzie: Yeah.

Nikole Mackenzie: So uh, I see you were getting out there, so, I don't know, like, it's rare I actually sell [00:32:30] forecasts. I we maybe have 10% forecasts.

Glenn Dunlap: Yeah.

Nikole Mackenzie: But, um, we a couple of things we do is we try to use because we're on a fixed fee. We use technology to try to automate as much as possible. So when you're comparing us, like right now, I have a prospect in the pipeline that's working with a larger firm that just is billing them by the hour and the owners complaining about their costs. I'm looking at their costs. We actually charge more per hour, but we do a fixed fee so that the client doesn't see that end and hourly rate. [00:33:00] I can come in a little bit less. I know we'll still make a good margin, but I know these guys aren't trying to audit. They're not trying to automate anything. They're billing by the hour. Um, so I can come in and talk about the problems that they're currently having. Lack of proactiveness. Their CFO is too involved in the accounting function. So I can come in and say, hey, we're going to do it for this price. We're going to solve all these problems for you. And I know we can still make a pretty good margin on that, even though we're coming in at a lower cost in this larger firm. That's billing by the hour.

Glenn Dunlap: Yeah. [00:33:30] So so they're not feeling the value right now. So they're or they're sensitive to the hours or there's something about that that just doesn't sit right with them.

Nikole Mackenzie: Yeah. So for them it was a value versus cost conversation.

Glenn Dunlap: Yeah.

Glenn Dunlap: And I think that's if you if your walk away price is is higher than the the perceived value on their part. There's that's that's where the challenge is right. I mean that's if you've got to figure out like either what happened there. [00:34:00] We didn't communicate the value to them. They don't understand it. They don't. They don't perceive it as value. I mean, there's there could be a number of things that are wrong with that, right?

Nikole Mackenzie: Yeah.

Nikole Mackenzie: And most of the time it's like sticker shock when when they get the proposal. But it's you hopefully talk them through through the value. And like one thing we do is okay if if this is too much for you, you can continue to do this component of it in-house. Momentum won't do that. And so we start. We start I start by giving them everything and then they're like, whoa, that's expensive. And [00:34:30] then I started saying, okay, you're going to keep that, you know, more in-house than and we won't have to take that over. Um, I forgot what your initial question was. I had a point.

Glenn Dunlap: I was just thinking of the the the perceived, the, you know, the difference between, you know, what your walkaway price is and what they might perceive as value. There could be there's a lot of times it's that explanation and just trying to help them understand, you know, to get to that, to understand what the value of that is. And that's where I was going with the forecast is like, [00:35:00] you know, if the forecast is going to cost them 4000 bucks as a for instance, you know, what's what's the value in that forecast? 4000 bucks might seem like a lot of money for a forecast, knowing that you might have tools like, like preview data that would allow you to do that in 30 minutes. Yeah, but the value to them. The value to them would be helping them to understand, oh, if I pull on this lever or this lever or this lever, then I'm going to I'm going to be more profitable. I'm going to turn that cash into or turn those R days into cash and save money on interest. [00:35:30] I'm going to do all these other things. I mean, those are the things that where the value is to them from a value building standpoint, that sometimes that's where helping them understand what that is, you know? Um.

Nikole Mackenzie: Yeah. And those are the opportunities. So like, um, those are areas where we can make really high margins because what we can do is leverage. So let's say, um, yeah, to your point, that's super valuable to the end user. Right. And so those are the things that you talk about during the sales [00:36:00] process. You don't talk about all the bookkeeping and stuff. You just talk about. Here's the outcome that you're looking for. We can help you with that. And then by packaging it all together, the way we do it is we don't have CFOs on our team. Like I have senior accountant level, some of our Filipino staff preparing forecasts using these tools. Right. And then you may have somebody your controller's speaking with the client about it. But we can continue to like leverage our less expensive [00:36:30] tasks or less expensive staff to do. Put a lot of the, um, reports and data and all of that together.

Glenn Dunlap: Yeah, that makes perfect sense. Makes perfect sense. And I think, you know, I think at some point, you know, people that, you know, it's, you know, you get you get what you pay for. So a lot of times when they when they're not, if they see sticker shock and walk away from that and they walk away. Um, they're probably going to put in [00:37:00] a, a solution that might seem cheaper and better for them, but ultimately doesn't provide them the same thing. And I think that's when you, you can justify, you know, this is why we were doing what we were doing, why we priced it the way we did.

Glenn Dunlap: Yeah.

Nikole Mackenzie: Well, the funny thing is, if you do the math, if you if you double your prices and you lose half of your customers. Yeah. Your revenue will be the same and you'll be more profitable.

Glenn Dunlap: Yeah you you won't have. You won't it? Way more. It could be way more profitable if you don't need all the same. [00:37:30]

Nikole Mackenzie: Yeah.

Nikole Mackenzie: Because your, your, your cost goes down right. Yeah. So I think, I think you were talking about earlier when you said when people mention the first five years, they're not supposed to be profitable. Profitability is a choice. It's absolutely a choice. But when you're not profitable and that's not your choice, that's a problem. And when you're not, if you're saying, I'm just investing back in the business, but you don't have a model or something to show. Hey, I'm going to pump everything [00:38:00] back into the business and then I'm going to sell it in five years. And this is the multiple I'm going to get, and I'm going to sacrifice this many dollars over the five years in profit in order to get that multiple, and that multiple is more than that profit I would have otherwise received, and consider time value of money and all that. Then, then cool. Like that's a great plan. But most people don't have that plan. They're just using that as a bullshit excuse to not be profitable. And in fact, I've been talking to some peers and clients lately who [00:38:30] are actively trying to sell their business. And I was talking to my friend and he is like the initial offers Lois they got were lower than he had hoped for, and he was a little bit bummed. He's like, I wish I would have taken the profits out during the years rather than invest in sales teams and R&D and all these things thinking that I would get a higher exit because you don't know what your exit is going to end up [00:39:00] being, right. You don't know what the market's going to be at that time. So.

Glenn Dunlap: Right.

Nikole Mackenzie: Take take your profits. And again there's also time value of money. You have to think about like dollar today is worth way more than the dollar in five years. And so considering that as well right.

Glenn Dunlap: Yeah I was at lunch this week with a friend of mine who's started a business about six months ago, and they were talking. He was talking about how they were just they weren't profitable yet, and they were choosing to reinvest and invest in, you know, and borrow money and do a bunch of stuff and. Right. And he's like, I don't [00:39:30] know. We're trying to figure out, like, do we aim for profitability or do we aim for growth? And I said profitability every time. And he's like, really? You think so? I'm like, yeah, yeah, uh yeah. Aim aim for profitability. And and the rest of it you can grow. So. So I think that's. Yeah. I'm with you there. Well let's talk about the, you know, working with different industries. And this is something I think that when you're an advisor and you're trying to to make some choices here, [00:40:00] you see everything from we see it because we're working with accounting firms across the country and accounting firms. A lot of them are. They tell you that their marketing strategy is answering the phone and taking whatever comes in the door. So, you know, they they've got one of everything. And then you see other firms that focus on one, one niche, and then you see other firms that will have 2 or 3 niches. And that's, you know, kind of their focus. And um, so it's it's um, you know, I think it's probably a little bit [00:40:30] easier to not be one of everything. Yeah. Because you're just having to learn everything over and over and over again. But it may be difficult to just be one. I don't know, there's probably a happy medium in there. But what are your thoughts on on, you know, focusing on a particular industry or niche and, and specializing in those things?

Nikole Mackenzie: Yeah, that's a good question. I have. I've gone back and forth with this for many, many years. And, uh, the fact of the matter is, I just every time I try to niche, I get bored and I [00:41:00] realize it's easier and more scalable and all that. But we've had some success with I would consider us more horizontally niche meaning clients are coming to us when they're they need financial operations set up and they need more control around cash. And so when I look at the characteristics of the businesses we work with, they're all very similar. And if we go back to initially I said earlier, those three types of businesses sell time, sell things, building something to sell. [00:41:30] Those are our three main types of businesses we work with. And so what I've done is said, okay, I know what's important to each of those types of businesses, professional service businesses. They have problem with pricing utilization, um, profitability and getting paid. So those are like the key things we look at right. And inventory based businesses, they always have issues with cash flow. So we're always doing cash flow stuff for them. Um they always need an automated bill pay system. So going through like what [00:42:00] are the common problems for each of these types of businesses? Then we get into SaaS businesses. They don't care about anything other than their than their burn and their runway.

Nikole Mackenzie: Right. So I've got templated reports for those three types of businesses. Sure. And depending on where they fall, that's the template I pull when I first started talking to them. And then we've got, you know, we can advise them on like not necessarily nitty gritty chart of account detail because that was getting a little bit too hard. But just their [00:42:30] main high level groupings that they should have. So then we can start tracking those as a percentage of revenue or percentage of expenses. So that's the way we approach it. And we're just getting into, you know, the peer reviewed data that you guys do is like I said earlier, that's something that all building all this out was over the last 12 months. Now that we've got this, I. I know that you've been around for a while. When I spoke to you. You've been doing this for several years, but I imagine I imagine there's going to be a lot of growth [00:43:00] for you over the next 3 to 5 years, just because the industry is catching up right now. So five years ago, I tried to build a dashboarding software. There was no dashboarding software that existed on the market. That was good. My brother and I spent a year trying to build this, put a bunch of money into it, reinvesting my profits. Right.

Glenn Dunlap: Right.

Nikole Mackenzie: And, uh, and then I found Rich reporting. So we started using them. Now there's all these other reporting tools that are coming out, but none of them have the benchmark data. And [00:43:30] all these accountants are going out there. And, and I talk to people all the time. They're like, we love this tool. But like, we don't know what to show. Like what do we show the business owner. So I, I think where the industry is moving is going to be more granularity in that benchmark data, more verticalization people are going to start choosing verticals and being more specialized. But meanwhile we have the large big firms that are super broad. And so I see them they're going to [00:44:00] start probably having departments or vertical groups. But um, but yeah, I think there's it's an exciting time to see just to be on the forefront of it. And like we're starting from the very beginning when it was just, okay, we've got QuickBooks and Xero and a couple tools. Now we've got all these tools, now there's AI, now we're being pushed up into advisory. But accountants don't know how to do advisory because they're technical people. So like what's going to end up happening? I think it's um, [00:44:30] it's just a really fun time to be a part of the industry.

Glenn Dunlap: Yeah, yeah.

Glenn Dunlap: I agree, I agree there's and there's so many things that, um, that are changing and not that I would have wished the pandemic on anybody. But I do think that it, it forced CPA firms to make some decisions about things that they that they had gotten away from or been unable to get away from? Let me put it that way. When we were when we first launched, the first question we would get when somebody would see the application is will it print? And you're like, like [00:45:00] what? Why is that your first question? Like, I don't I don't really get that, um, you know, uh, but but when you think about their workflow and their processes, they were taking tax documents or audit, you know, outcome outputs, and they were putting those in binders and they wanted our stuff to go in the binder with it. And it was like, I don't.

Glenn Dunlap: If that was not my first sort of inclination for this. And then what happened with Covid is that people went more on screen. And [00:45:30] so the idea of of being able to share the reporting on screen, uh, really changed that. Of course. Of course it prints we printed out to PDF or you can, you know, push it to excel. But I think it's just it's just an example of how the, the profession has changed where you everything was done in a, in a conference room or a boardroom that you, you know, handed somebody an envelope or a binder and, and you know, here's, here's, here's the output, here's what we did for you. And that's [00:46:00] just not that's not the the way things are delivered today. So it's, um, you know, definitely changed. And, and we see the, the niche element happening just like you're talking about just it's, um, it's, uh, even in the large firms, they're, you know, what's what's one thing that I think has is making them take a hard look at this is that you see a ton of acquisitions that are happening in the profession today. And how do they get their arms around? What do we have here? Like they, you know, how does this fit and what are we doing with it. What are what's [00:46:30] the expertise. What do we tell our referral sources? How do we go to market with us? All those kinds of things are are forcing them to, you know, you just can't keep adding.

Glenn Dunlap: One.

Glenn Dunlap: Thing after another without really taking a look at the value that you've, you know, the things that you've just acquired.

Nikole Mackenzie: So yeah, one thing that was a big transfer, how it all started was realizing, like I had to change the way I did marketing, right. So I started just talking about the problems that our clients were having or problems that we solved [00:47:00] for our clients, and then that started attracting the perfect client that we wanted. And it wasn't necessarily, again, it wasn't necessarily the industry. It was more of the specific problem they were having that we are really good at solving. Yeah, I love that. So I think if you're not niching in an industry, it's a little bit harder on the marketing side, but it can be done by talking about their problems. Um, and the other thing that, that we, that we went through. So like when I rolled out, okay, we have we're going to do all these reports, we're going to show these clients all these KPIs. [00:47:30] I gave them to the team. And they're like, my CEO at the time comes back to me because my, you know, obviously my team's not going to tell me on the call. And she comes back to me and she's like, Nicole, they don't know how to like what these metrics mean or how to use them with a client.

Nikole Mackenzie: And so we had to like take 4 to 6 months of pausing, rolling it out and saying, okay, let's do training. That's why I started the cash flow show. Um, and so now I have them listen to Cash Flow show, so they get to listen to me talk even more, and then [00:48:00] we come back and we apply the concept in with our client data. So every time we onboard a client before we give them their first deliverable, their first report as a team, we do a little bit of role playing. So we have one person pretend like they're the client, and then the rest of the team has to ask questions. So it's getting them to think again about the outcome rather than the inputs. And it's totally changed the way they think. So internally we call this um, profit points is like our framework for advisory and profit points is something [00:48:30] that I'm actually working on to take to other accounting firms that they want. It's still in the works. It's um, but if anybody is interested in getting signed up on the newsletter, feel free to. We can link it, or they can follow me on LinkedIn and see what I'm up to there.

Glenn Dunlap: I think that's really important. I mean, you talk about like, you know, with your current staff when you're hiring people, when you're thinking about, you know, the growth of a, you know, people moving from one role to another role, I think there's there I [00:49:00] mean, there's already an accounting accountant shortage in the profession. So, you know, it's trying to figure out how to upskill or, or train or help people to make that, that progression. And they've already proven that they're smart and they're very capable of of, you know, learning and applying, you know, complex, you know, issues or, you know, theories and all that kind of stuff. So, I mean, it's just so that that part's not a problem. It's just now you've got to can you help train [00:49:30] them to get them to, to understand something that's in a new, new way. And, you know, it's also it's I think it's partly, uh, a challenge with what's happening at the colleges and stuff and how they're what they're learning. You know, when you accounting programs are not teaching financial statement analysis now. So that's all left to the finance group, right. The finance department. And um, and so it's they're being trained to, you know, go into public accounting and do tax or audit, uh, [00:50:00] or in some cases to go into, into industry, but uh, mostly public accounting, I would say. And then the challenge there is, is then, you know, um, yes, you were able to distill down what this meant for, for a, for the purposes of tax. But what does this mean for operating a business? And like what, you know, what can you do to help them improve. And across the, across the board, you know, um, you know, there's there's a blinder set that's on that I'm doing my taxes, I'm [00:50:30] doing tax returns for my client. And I'm not I'm not paying attention to, um, you know, they're not going to be around next year if I don't help them do something different here.

Nikole Mackenzie: No, no, they're very focused, and. And that's okay. Like, that's what their job is. And I try to educate when I talk to clients of, like your CPA job is to file your tax return and do tax planning and strategy with you. They're doing bookkeeping as an ends to a mean to be able to do that. But they are not going to be the person that's going to talk to you about financial statement analysis or business outcomes. So, [00:51:00] um, that and with accounting, right, when we think about what we've learned and the framework that we've used for accounting debits and credits, the idea of matching principle, all of these things, we need to also we need to change that and add on to that and say what is the framework for advisory. And so like that's one of the things that I'm passionate about and I'm working on and hopefully some, some value I can bring to the, the industry, uh, in educating people who want to have a more of a framework for delivering that kind of advice. [00:51:30]

Glenn Dunlap: Yeah.That's great. That's great. Nicole, any any parting thoughts on the, you know, growing and managing an advisory practice?

Nikole Mackenzie: No, I think we nailed it. I got to jump off and hopefully close this this proposal I'm presenting right now in one minute.

Glenn Dunlap: That's good. That's good.

Nikole Mackenzie: I go practice what I preach here, right?

Glenn Dunlap: That's right.

Glenn Dunlap: If somebody wants to get a hold of you, how do they do that?

Nikole Mackenzie: The best way is to follow me on LinkedIn. Nicole and Nicole. [00:52:00] And then last name is Mackenzie. And then if you want to check out our podcast, I do with Scott Scarano. It is Cash flow show.

Glenn Dunlap: That's awesome. Thanks, Nicole. It's been great and enjoyed the conversation. And, uh, you know, we'll look forward to catching up with you here soon.

Nikole Mackenzie: Okay. Take care. Thanks. Thanks for having me on.

Glenn Dunlap: Absolutely.