#14 Why You Should Use a CPA with Matt Waller

In the Sherpas Cave this week we are joined by Matt Waller. Matt Waller is the Senior Manager, CPA at Henry + Horne. He has a lot of experience with banking, auditing, and reviewed financial statements. Matt will share his expertise with us about the types of records you should keep and how to be prepared for anything that might come your way.

TRANSCRIPTION:

Speaker 1:
From his first job flipping burgers at McDonald’s and delivering The Washington Post, Craig Willett counts only one and a half years of his adult life working for someone else. Welcome to The Biz Sherpa podcast with your host, Craig Willett. Founder of several multimillion-dollar businesses and trusted advisor to other business owners, he’s giving back to help business owners and aspiring entrepreneurs achieve fulfillment, enhance their lives, and create enduring wealth. The Biz Sherpa.

Craig Willett:
This is Craig Willett, The Biz Sherpa. Welcome to today’s episode. I’m grateful to have with me, Matt Waller of Henry+Horne. He’s a Senior Manager at Henry+Horne, and he has a lot of experience with accounting, banking, auditing and reviewing financial statements. And I’m hoping that today he’ll be able to share with you a lot of his expertise to help answer some of your questions about the types of records you should keep and how to be prepared for anything that might come your way. Welcome, Matt.

Matt Waller:
Thanks, Craig. Thanks for having me and I’m excited to be on my first podcast here today.

Craig Willett:
Good. Well, we’re glad that you chose The Biz Sherpa to be your first podcast. Thanks for joining us. You know Matt, often business owners—I’ve seen it several different ways being a CPA myself or former CPA, I don’t practice—often they realize they have a need for a lender and all of a sudden they kind of pick up the phone and call you and say, “My bank needs a balance sheet and an income statement. I can kind of show them an income statement, but I don’t know what a balance sheet is.” How do you recommend— especially businesses that are starting out—what they should do from day one to help them keep track of not only income and expenses, but keep track of their cash and everything else?

Matt Waller:
Yeah. It’s pretty amazing sometimes what we see in practice and you described it perfectly. The panic of all of a sudden, “I need something, I need to figure all of this out.” And that’s definitely not the way we recommend business operate. It’s hard sometimes when you’re just starting out, you know, new business, you’re focused on what you’re trying to do. It’s what you’re passionate about we hope, you’re very focused on day-to-day operations and maybe you’re not an expert in finances.

When we come into that and it depends on the size and scope of what we’re dealing with, but sometimes things can be as simple as Excel spreadsheets. Generally don’t recommend that, unless it’s a really low transaction business and that’s generally what you might start with. But there’s some really basic things that we talk to clients about when you’re getting into starting a business. It may be as simple as, “Open a separate bank account.”

Craig Willett:
I think the IRS would like that too.

Matt Waller:
Right.

Craig Willett:
They know what you intend is to be business versus personal.

Matt Waller:
Right. So a lot of people just start out their business and it’s their personal account and they’re running expenses through, and then sometimes they’re not tracking it. And then at the last minute they have to sort it all out. It’s hard to remember what you did six months ago, let alone six weeks ago.

Craig Willett:
Yeah. And the older I get, the harder that is.

Matt Waller:
Yeah.

Craig Willett:
Believe me.

Matt Waller:
“Open a separate bank account.” Maybe it’s just, “Open a credit card where you track your expenses.” There’s a lot to learn.

Craig Willett:
A separate one where you just keep business expenses on there.

Matt Waller:
Right. If you don’t open a separate bank account, at least you use a credit card to track those expenses. There’s lots of low fee credit cards that you’re not paying a lot, but it just makes the record keeping for that a lot easier. We’re fortunate to live in the era we’re in that everything’s at your fingertips, right?

Craig Willett:
Right.

Matt Waller:
You can do a Google search, Small Business for Dummies, it’s that book. But I think it’s really important to get that basic knowledge and say—some people don’t even really know what a balance sheet is, what an income statement should look like. It’s some of that real basic knowledge and it’s available out there. Every keystroke you can find something.

Craig Willett:
What about aids to help you besides an Excel spreadsheet? Are there software packages that are fairly inexpensive for a business owner that may help him or her track their invoicing and their receipts? Because sometimes you send a bill out, you have to always try to remember if they paid—what’s out there?

Matt Waller:
Yeah. Again, we’re fortunate to live in the era we’re in. There are a lot of options at this point. I’ll throw a couple out there. I’m not a paid spokesman for any of them, just a couple of things.

Craig Willett:
No endorsements here.

Matt Waller:
That’s right. A couple of things that we’ve come across. I mean, I’ll throw out—to begin with—QuickBooks is still a great platform for a small business. A lot of our clients in that small business range use that software. It can account for inventory, payroll, some of the more complicated things that you get into, maybe as you scale your business. Obviously that’s a little more expensive than, say there’s a platform—there’s something called Xero, an online platform—

Craig Willett:
Oh, really?

Matt Waller:
—that does invoicing, can connect with your payroll system, and it’s very affordable. There’s even free platforms at this point. I believe it’s called Wave—is a platform that it’s $0 to use. You can do all your invoicing through it. It’s a very simple, basic program. Now they get you with fees that they want you to use their payment platform and they get you on a transactional basis, but it’s basically a $0-cost system to run a basic balance sheet.

Craig Willett:
You bring up a good point. I come from the generation of, you print out checks, you sign them, you keep copies, you keep them in order. But today is more of a digital transaction environment. I get invoices from people and they’re telling me send payment by any number of different—

Matt Waller:
PayPal, all these different transactional systems. And they’re all linked now. It’s very streamlined and all of these systems have that capability. And the nice part is, I mean, people want—generally now you’re not even sending paper invoices. It’s an invoice through email, and you pay online through a secure portal. All of these systems—

Craig Willett:
Yeah. Whether by credit card, or ACH, or something like that.

Matt Waller:
Yeah. I mean, my pool guy sends me my invoice through QuickBooks. It’s QuickBooks online, and it’s through PayPal, and it just feeds right into their system. They never really have to touch anything. It’s a professional-looking invoice. It’s not something you have to print out, all that kind of stuff.

Craig Willett:
That’s pretty cool.

Matt Waller:
Yeah.

Craig Willett:
So you recommend, “Look into these, use the technology because it makes it easier.” One, for you to get paid. A platform like that is you don’t have to wait for the mail to deliver or not deliver it. We all have had problems with the post office.

Matt Waller:
Right.

Craig Willett:
And we don’t have to wait for the time lag of payment. “Oh, I’ve got to print out a check. They have to be in town.” Instead, you could be in Hawaii when your pool guy sends you the invoice and you could make the payment from there.

Matt Waller:
That is absolutely how it works. I generally come out and do something specific and I get the invoice within an hour of somebody being out there and probably the technician has a mobile and probably does the invoice through that. And I pay it same day.

Craig Willett:
We’re not talking just about record keeping. We’re talking about key elements that are the basis for record keeping, but are also keys to getting paid timely.

Matt Waller:
Yeah. And so it is two-fold there. It’s feeding all that information into a system that you then have to monitor and understand what’s going into it, but it does certainly facilitate faster payment and more streamlined.

Craig Willett:
Every business owner wants that. It’s all about cash flow in the early days, because that’s less you’re going to have to invest in your business if you get paid sooner for your work.

Matt Waller:
Yeah. I mean, “Cash is king,” right?

Craig Willett:
There you go. Well, not only is cash and accounting important, but a lot of businesses are told, “You need to have a business plan or a budget.” I mean, what is a business plan or what is a budget? How does someone even know how to set that up? And then boy, it seems to me like a pain, I always hate the budget because then I have to see what I didn’t live to. I didn’t live to my plan.

Matt Waller:
Accountability.

Craig Willett:
Yeah. That’s what it is. Okay.

Matt Waller:
That nasty word, but—

Craig Willett:
That’s part of the word accountant, too. Isn’t it?

Matt Waller:
That’s right. Those two things go hand in hand, the business plan and a budget. I think they coexist with each other, but there’s definitely nuances. I think a business plan is really important for the owner to get an idea of what your company is. What is it that I do? I laugh. I have a friend of mine, he’s an acquaintance—a very good acquaintance of mine—and I see him at a lot of networking events and he owns a business and it’s technology-based. I’ll see him once every couple of months, and we’ll talk about business, and I’ll ask him, “Remind me again, what it is you do?” And I swear, he has given me a different answer every time I’ve met him, and I still don’t quite understand what he does for a living.

Craig Willett:
So he’s constantly changing. He’s a chameleon.

Matt Waller:
He’s either constantly changing or he hasn’t figured out how to describe what it is he does.

Craig Willett:
What he does.

Matt Waller:
What his company does. And because of that it’s hard for me to refer work to him. I’m not quite sure what his lane is.

Craig Willett:
And so that’s part of the business plan or budget process is defining you, your market, your niche market. What you’re really after into a really concise, understandable to not only your customers, but to potential customers.

Matt Waller:
Exactly. One of the biggest pieces to the business plan is it gives you a sense of, “What am I actually doing and how do I communicate that to the public, my potential customers?” So I think that’s a really important piece. And then it kind of leads into, “Well, this is what I’m doing, now I need to understand how can I make money doing this?”

Craig Willett:
Right.

Matt Waller:
And that’s kind of this budget concept. How do you know how to price what you’re doing if you don’t really know what your costs are? I mean, it’s getting that understanding of, What does this business look like from a dollars and cents standpoint?

Craig Willett:
Right. You need to understand what your overhead is, what your other costs are, not just what your product costs and how to make a margin on that, but to cover all your other expenses.

Matt Waller:
Right. Right. And to set goals. Where do you want this business to be in one year, in five years? It’s okay to miss budget. These may be aspirational. We tell our clients, “Set realistic budgets,” and you can spend a lot of time talking about the effectiveness or ineffectiveness of those.

Craig Willett:
Right. But I think the aspiration is important. People need to aspire to something, but you have to bring a sense of realism to it too. Not so much at—no one is going to test you on whether you made your goal. So you don’t want to set your goal too low that you’re not pushing yourself to be successful.

Matt Waller:

That’s right. It’s that fine art of finding that middle ground of nothing too astronomical that, “I know I’m never going to hit this. So why even try,” or too low that you’re just not trying hard enough.

Craig Willett:
But if you’re only accounting to yourself, that’s one thing. But if you have investors or a bank loan, you need to be fairly realistic, because if you don’t meet your targets or have a good reason why you didn’t, it will start to undermine your credibility with your investors or your lender.

Matt Waller:
Yeah.

Craig Willett:
Will it not?

Matt Waller:
It makes them nervous. I mean, they expect that you understand the market that you’re in and they’re going to want to know what those plans are, particularly investors. Bankers maybe have a little more retrospective look at your company and look at other things, but an investor is there generally to seek an exit plan and they want to see growth and understand how you’re going to do it. So that budgeting process is really critical, particularly if you’re looking at outside investors.

Craig Willett:
I think that’s great. So now you have your budget, you have your business plan in place, you’ve got your software, so you can bill and collect, what’s wrong with the theory of, “Hey, I don’t have to really look at my bank statement. The only time I have to worry about my bank account is when I overdraft.”

Matt Waller:
There’s a lot of things wrong with it.

Craig Willett:
Okay.

Matt Waller:
Well, we mentioned that “Cash is king.”

Craig Willett:
Right. As long as I have money in the bank, what does it matter?

Matt Waller:
Yeah. Well, probably the biggest thing, to be honest is, that’s where fraud occurs. I mean, if you’re not an inventory heavy company, what’s the only other asset that is susceptible to fraud? Fraud is prevalent in our society anymore.

Craig Willett:
Yeah. Especially third-parties that could access—unbeknownst to you—your accounts.

Matt Waller:
There is all sorts of manners of fraud now. And if you’re not keeping an eye on your cash, then you’re not doing yourself any favors. And it’s not a matter of understanding every penny and dollar that goes out—

Craig Willett:
So reconciling to the penny shouldn’t be my objective, it should be more I’m safeguarding my asset.

Matt Waller:
Generally. And it depends on the size of the business you’re talking about. If you’re talking about, it’s a five-man operation, you know you’re in there every day, you kind of know what’s going on. If you’ve grown your business to 50 people, to 75 people, you start losing the ability to see that on a day-to-day basis. And it’s important for you to just kind of keep that second set of eyes. I mean, things can happen.

Craig Willett:
You reminded me of an experience I had early on in my career as a CPA with the second firm that I worked for. There was an automotive repair shop and the client was great at repairing automobiles. And so were his sons and so were the other employees of the business. And they had a bookkeeper, an accountant working in the business. And the bookkeeper at the end of the day—they started wondering, “Why do we keep growing and we keep getting more and more revenue but we still don’t have any extra cash” or “We should have had greater profits at the end of the year?” They hired our firm to look into it and what was happening—I told them to put their bookkeeper on vacation for a week so we could just come in and look.

And what he had been doing is there was no cash ever getting deposited into the bank. So the cash receipts at the end of the day, when he would go take them, he would make up the deposit slip and everything was credit card receipts or checks and the rest of it, the cash never made it to the bank. And he was pocketing it. We estimated, based on the invoices we sampled, over $200,000 a year in cash never made it there. When they called him to talk to him about it, he ended up not showing up the meeting, rather committed suicide.

Now, I’m sure it was embarrassing to him. I think they would’ve worked something out with him knowing this was a family-owned business and he was like family, wasn’t related. But it just goes to show you if you’re trusting other people to do functions in your business, reviewing once in a while what happened—for them, they could have stopped it a long time ago by looking at, “Hey, we had this many invoices the other day, we had this much in sales and here are the receipts from it, but only this much made it to the bank. What happened?” And it got to be really bold when he started realizing no one would know he took all the cash.

Matt Waller:
Yeah. We see this happening—

Craig Willett:
Cash meaning the dollar bills.

Matt Waller:
Right. It’s good for business owners to understand that just because it goes out in the bank doesn’t mean it always hits the income statement. Where a lot of fraud gets hidden is on a balance sheet and maybe an owner really doesn’t—they’re not focusing on a balance sheet or they understand revenues and expenses, but if you have an accountant in place internally, there’s an ability to hide funds for some time on a balance sheet that you might not even notice. And if you’re looking at the bank statement, you get a sense of where your cash is going.

And it kind of leads to the point of why you might have a third-party CPA come in and do financial statements because you want that third set of eyes, because trust goes only so far.

Craig Willett:
And you don’t want to tempt somebody. The problem is why give them the temptation.

Matt Waller:
Right.

Craig Willett:
It’s like somebody sitting in front of me, I’m on a diet and they’re sitting in front of me, a dozen donuts. I know I’m going to eat at least half of them, right then.

Matt Waller:
Yeah.

Craig Willett:
I don’t have the self-control. Don’t put the dozen donuts in front of me, because I love Greenfield donuts and I’m going to eat them.

Matt Waller:
Yeah.

Craig Willett:
And the same thing, I like cash. I needed a little bit, maybe his intent was, “I was just going to borrow a little bit, I needed something and I’ll pay it back.” And then no one ever asks. So then he takes more and more and you get more and more confidence to do something to where it escalates to where—most people that commit that kind of fraud don’t realize how big it got.

Matt Waller:
Right. This has been a major talking point in my last six months to my clients, given what is going on in our world with the pandemic, everything going remote. That means controls within and internally are breaking down. People are economically hurting. Your employees might have taken pay cuts. These all create what they call the classic fraud triangle. And I think you’re going to see a lot of fraud, unfortunately, occur or come out within the next six to 12 months in businesses because we’ve created an environment that has all those conditions present. So I’ve been telling clients, “Keep an eye on what you’re doing. It’s really important right now to follow that.”

Craig Willett:
What role can an outside CPA firm be in helping that? I mean, there’s audits, there’s reviewed financial statements, but are those designed to detect fraud? Or is there something in addition to that that a business owner might want to consider?

Matt Waller:
Yeah. So it’s kind of a classic misunderstanding a little bit of, “I have an audit done. So that’s for sure going to detect any fraud that’s occurring in my business.” And unfortunately that’s not the case. And that’s not what an audit is designed to do is make sure that every penny has been accounted for.

Craig Willett:
So why do we pay accountants to do review of financial statements and audits? And usually significant fees. What’s it designed to do then?

Matt Waller:
It is. It’s designed to identify significant fraud. So that’s kind of the understanding is, we’re not going to find out that somebody has taken $100 from your business. And depending on the size of the company, if you’re a $100 million company, we might not detect $100,000. It’s all relative, but it’s giving you a relative sense of safety. The classic is it’s no material misstatements on the financial statements. We’re providing—

Craig Willett:
They’re following segregation of duties, they’re following certain procedures that should prevent significant activities that would misstate the financial statements.

Matt Waller:
Yeah. All of those controls are in place and if they aren’t, we can let you know and give you recommendations of, “This is a bad method or bad practice, here’s what we would suggest in terms of segregating duties or setting up different processes.”

Craig Willett:
So I kind of derailed you.

Matt Waller:
No. Sure.

Craig Willett:
I want to come back to reviewed financial statements and audits. But let’s talk for a second about how can you help a small business owner that wonders if there’s somebody doing something with their cash or credit cards or online payments or something like that is diverting it?

Matt Waller:
Yeah. So usually the conversation starts with what keeps you up at night? And you listed some of the common areas that are susceptible to fraud, and if they have those concerns, we certainly can come in and design specific procedures to look at those kinds of things. Maybe starting with how do these get processed? Who’s involved in it? Let’s talk to them, put a little heat on them, so to speak.

Craig Willett:
Right. It’s always nice when someone’s looking over their shoulder, it’s kind of unfortunate the guy that committed suicide. Once he knew somebody was looking over his shoulder, he didn’t need someone to tell him he was doing wrong, he knew what he was doing.

Matt Waller:
Exactly.

Craig Willett:
And that kind of looking over kind of either prevents or discourages.

Matt Waller:
Yeah. Kind of to the idea of the audit, a lot of people think that it’s going to catch all the fraud, so it does prevent fraud from occurring. Yeah. We ask business owners if there are specific concerns. We’re accustomed to that. We have a lot of different procedures, things that we do to be able to go in, test those, and see if we think there’s anything unusual about that and bring it to their attention.

Craig Willett:
So if someone’s concerned, they ought to do that. Now, back to reviewed financial statements and audited financial statements. When is a good time for a small startup business to consider using those types of outside services in a business?

Matt Waller:
Yeah. There’s a lot of considerations to it, but generally it’s when the owner is unable to really keep an eye on all functions of his business. It’s an element of size. Generally, that might be related to number of employees, it can be related to revenues. But in general, when it comes from an owner requirement, it’s when you can’t sleep at night.

Craig Willett:
Okay.

Matt Waller:
You have a little bit of concern that you want that done. The other big reason is you expect that you’re going to need financing to continue to grow your business or, “I’m looking to add investors to this business.” By and large, those types of relationships are going to want to see at least reviewed financial statements.

Craig Willett:
Right. So a lot of lenders will put that as a requirement that we want to see reviewed financial statements on a periodic basis annually. And then certainly investors at the sophisticated level, if the dollar amounts are getting up there, they’ll insist on audited financial statements. Whether you’re a public company or not. Right?

Matt Waller:
100%. I would say if it’s considered private equity, an audit is all that they will generally accept.

Craig Willett:
Really?

Matt Waller:
Yeah. You might have the friends and family around, that’s fine. They’re not going to push those kinds of things on you, or if it’s kind of a personal relationship and you have that going on. But once you get into the outside investor world, by and large, a lot of them will insist on an audit.

Craig Willett:
So if you don’t like that level of sophistication, I mean, you grow to a certain point. Certain people want only a certain amount. They have a number in mind of what they’re trying to do, and they don’t want to necessarily grow any bigger or they don’t want to take on the responsibility or the accountability to investors. You can control whether you do that or not.

Matt Waller:
Yeah.

Craig Willett:
But at some point, once you make the decision to do it, the decision is made for you that you have to do the audit or the review.

Matt Waller:
Yeah. I mean, if you’re in the fortunate position that you never have to seek lender, financing, or investor financing, kudos to you, and congratulations, that’s a heck of a business. But a lot of them need that in order to scale and grow their business. And the bank, they want that. They need that. They’re de-risking their investment in you, essentially.

Craig Willett:
Well, and then they’re regulated so they have to have documents in the file saying that they’ve looked at and considered and understand what’s going on in their own portfolio. So they need to understand the business, and the annual performance update of financial statements is a big one. It shows whether things are getting better or worse and if it’s getting worse what the company is doing about it.

Matt Waller:
Yeah. It’s funny, I often refer to what we do as being the insurance policy over your financial results. If we don’t do a good job when we’re doing an audit or a review, those investors or bankers can come after us and recoup their funds. We’re like an insurance policy to them. We’re saying, “These are good.” And if they aren’t, they’re going to look at us and seek recoupment of those funds. We’re really like in the hot seat.

Craig Willett:
You’re an insurance policy.

Matt Waller:
Yeah. Yeah.

Craig Willett:
Yeah. That’s great. So it gives them assurance and that’s really what it’s about. It’s an assurance function.

Matt Waller:
Yes. Yeah.

Craig Willett:
Great. Now, let’s leave—we’re talking about lenders in relation to financial statements. As a CPA, are there times where you find that you’re able to refer your clients to banks? Tell us maybe some experiences because matching the right customer or client to the right lender is important. How do you know how to do that? What businesses are suited to community banks? Which ones are suited to regional banks? And which ones are suited to national banks?

Matt Waller:
Yeah. This is a conversation we have almost immediately when we get involved with clients of ours. We want to know who your lending relationship is, who your attorneys are, who your insurance providers are, all of these things, because as CPAs, we get to know—it’s kind of your professional services group. We all talk to each other and we all network and we all refer work back and forth. So we have a good idea of who the good players are and who the not so good players are.

Craig Willett:
Marginal.

Matt Waller:
Yes, marginal. Usually, as a small business you start out, you probably continue to bank your business with whomever you banked with personally. And that’s generally the Wells Fargos, the Chases of the world, but a lot of times those aren’t the best fit for a small business. To be honest, those large banks aren’t focused on that area. And that’s why—

Craig Willett:
Even though they have small business lending arms.

Matt Waller:
They have that function, but I’d say a lot of that’s very automated. That’s how they make money, automation. That’s when you call a hotline and you get routed to five different people and never get an answer.

Craig Willett:
But as a business owner you want some relationships, some understanding that if there’s something you need, a special need coming up, you need someone to talk to, “What’s the best way to help me with this?”

Matt Waller:
Right. We don’t necessarily promote that it needs to be a local bank or a regional bank, but often those can have a little more personal touch at that smaller business level. As you grow your business, those large national banks certainly make a lot of sense and they’re very interested in you and they do very well by you. It’s very common for us to get into a relationship with a client. We meet them, we ask them who they bank with. They say “Joe Schmoe” bank. We ask them, “What’s that relationship like? Are you happy?” And again, that may unleash the flood of, “I’ve been trying to get—”

Craig Willett:
Let me tell you a story.

Matt Waller:
“—I’ve been trying to get a loan with them. They won’t provide much more than $500,000 line of credit, and they’re not comfortable with it.” And we can say, “Hey, here’s a list of a couple banks I’m familiar with. They do exactly what you guys—”or, “They’re very familiar with what you do. Encourage you to talk to them and we can even provide the healthy lead into it.” And that even makes the bankers a little more comfortable.

Craig Willett:
More comfortable.

Matt Waller:
Yeah.

Craig Willett:
I think they like that. I’ve seen it often in my experience that there’s a company that’s banking with a certain bank. And because they’d been there so long, the bank would make them a loan, but it wasn’t enough. And the bank wasn’t educated and wasn’t specialized in that type of industry and they weren’t able to support them the way two or three other banks I could think of could. What is that like? Can you tell us a story of maybe where you were able to match a better situation? You can name names if you want, but if you don’t feel comfortable, I understand, because we don’t want to trash any particular lenders.

Matt Waller:
Yeah. I do a lot of work with contractors. Okay. Contractors can make banks—

Craig Willett:
Construction contractor.

Matt Waller:
Yes. Construction can make banks uneasy—

Craig Willett:
Oh really? Why is that?

Matt Waller:
Yeah, a lot of them. We won’t mention what happened 12 years ago or so.

Craig Willett:
The financial crisis?

Matt Waller:
Right. So we’ll get into a relationship—I have several clients that we’re banking with a bank here locally that clearly had become uncomfortable with banking contractors. And the way in which they squeeze their clients is upon renewal, there’s always additional fees that are added on. There’s increased covenant requirements that make it really hard for you to run your business the way that you want.

Craig Willett:
All of a sudden, now you have to have a certain amount of cash to debt.

Matt Waller:
Liquidity. Yes. And debt to equity coverage. And all the things that make it harder for maybe you to continue to grow your business. That bank doesn’t want you to grow your business. Particularly—

Craig Willett:
They want their loan paid off. They want you to go somewhere else, but they don’t want to tell you to go somewhere else.

Matt Waller:
Right. So we come across that in industry like that and instantly we can tell you, “I know two or three banks that love working with contractors, they have a lot of them, they understand that business. They know what to look for in terms of how to lend to them that make it a lot easier. So don’t think that your bank does it all.” And that would be similar to an accounting firm. Not every accounting firm does construction contractors, and they may not be familiar with it.

Craig Willett:
They’ll do you disservice when they issue a financial statement. It may not appeal to the bank because it’s not following the conventions they’re used to seeing.

Matt Waller:
Yeah. I’ve picked up financial statements that clearly—the accountant has one or two contractors. They don’t have them on percentage of completion. They don’t have WIP schedules, all the things that a traditional bank would expect to see from someone fluent in that.

Craig Willett:
So it’s beneficial to line up in your industry, both as an accountant and a bank. And sometimes that changes. Banks de-emphasize certain industries and don’t want to make new loans. Sometimes you have to move around. I had a key strategic advisor tell me a long time ago—and I’m grateful that he did—he said, “Craig, you have all of your loans with one bank.” They did. That bank would lend me anything I ever wanted.

I mean, I kind of had an open checkbook with them and I’m grateful that we had that kind of relationship and trust. And I honored that relationship and always repaid, and I appreciated their trust. But he said, “You know what happens if they get in trouble for some reason and they can’t make the next loan, you need to have a relationship.” And so I went to two other lenders and built relationships there which helped me to some degree. And so you’re right. Sometimes you need to consider not just one bank, but maybe you have two or three.

Matt Waller:
Yeah. I mean the big banks—

Craig Willett:
For different reasons.

Matt Waller:
Yeah. I mean, we see it a lot in the transactional day to day needs of a business—meaning you’re checking your receipts, that kind of stuff—may still reside with some of the big national banks. They have platforms built to really make that very efficient for them, but they may not be your best lender of choice for the business you are. So that’s when you may look to a regional bank or a local bank and it gives you some of that diversity.

Craig Willett:
That’s great. Now, as a CPA, there’s other services that you can help provide such as—are there times where you sit down with your clients and say, “As we look at this, you seem to be light on your profit margins from what we know,” without disclosing what your other clients do. “Why might that be?” And you can help them try to identify areas that may help them improve their financial performance.

Matt Waller:
Yeah.

Craig Willett:
Does that happen occasionally?

Matt Waller:
It happens a lot. And it’s the most gratifying aspect of what I do.

Craig Willett:
Because I just don’t bring you a pile of stuff and say, “Hey, give me a financial statement so I can get my loan renewed, and I’ll see you next year when I have to file my tax returns.”

Matt Waller:
I mean we do, as accountants, live in a very compliance-driven world and we do that function, and we do it well, obviously. But I think the best way we can serve clients is getting into the conversations you just mentioned. And we do have that. The nice part about us as public accountants, I’ve worked with 50 clients at any one point and I’ve worked with 100s of clients over the course of a career. So you see a lot and you really gain an understanding of what works for clients and what doesn’t. And being able to sit down with the owners of those businesses or the COO, CEO and say, “Hey, this doesn’t look right. What are you guys doing here to address your profit margins?” Or, “Your employment numbers don’t look right given what you’re doing. Let’s talk through that.”

That gives that opportunity to be that actual advisor that’s much more meaningful to them and it’s much more meaningful to us. It’s where our value resides. It’s not in preparing taxes and audits. There’s a lot of firms that do that.

Craig Willett:
I think that’s important. And I think that’s key to our audience to have them consider, “When I’m hiring somebody, what can I get additional? What’s the value-add here?” Now that may mean that they pay you an additional hourly rate or a different contract to undergo that, but what a great benefit to a business to have somebody who has financial expertise that they can’t hire full time.

Matt Waller:
Right.

Craig Willett:
If they had to hire someone of your level, they’d be $200,000, $300,000, $400,000 a year. There’s no way they could afford to do that, but they can pay you so much an hour for a period of time to help identify those areas and come up with a strategic plan to address them.

Matt Waller:
Yeah. Yeah. At Henry+Horne, we have 75 plus construction contractors that I work with. That provides a lot of perspective as to how those businesses operate and that’s valuable information to an up and coming startup or whoever it might be. So I think that’s pretty important.

Craig Willett:
That’s great. And I think that’s something that people should ask because I know it’s often intended but so often you said accountants tend to be compliance-oriented, they’re deadline-oriented, got to get this into the bank by this date, or get this report to the IRS by this date, somebody is always pressing for a deadline. But it’s important, I think, to look at people who are going to say, “All right, we’ve done that, but now let’s sit down and find some other time to talk.”

I know some of the best advice my father-in-law gave me when I was starting my own CPA firm—and he had moonlighted doing this when he worked for the IRS doing tax returns for people—he said, “Craig, do me a favor. If you’re going to start your own practice, take an afternoon a week,” this was every week, “Take an afternoon, leave your office and go out and visit your clients.”

I went and did that. And you know without fail, I always came back with more work because they had all these questions. They said, “Craig, we’re having to deal with this or we have this. We don’t know how to do this.” Or, “We’re not sure what to think. This is what’s going on in our business. Can you help us?” And I came away with more work every time and I’m grateful for the advice. And so on the flip side, if you’re looking for an accountant, look for one who’s going to take that kind of interest in you to help you.

Matt Waller:
Yeah. Yeah. I can’t tell you the number of clients that have basically become friends of mine. I mean, there’s certain professional lines that you don’t cross, but I would certainly count a lot of my clients as also friends because eventually they tell you all the secrets.

Craig Willett:
Well, you have the inside scoop too. You can see it.

Matt Waller:
Yes. You’ve already looked under the hood. And you can tell them that their kid is ugly sometimes and that’s our job. That is our job.

Craig Willett:
In a very nice way.

Matt Waller:
That’s right.

Craig Willett:
Great. Hey, I have another question about cash flow. I’m just wondering how—if I’m a new business owner, we talked about having bank cash in the bank, that’s fine. As long as they don’t overdraft. I think some people run that way. I know there’s periods of time in my life where I have, because you’re busy enough and focused on what’s important. And if you hire someone and you look at it periodically, you can avoid the fraud or the other situations, but what are some keys to understanding what cash flow is? Just some basics that our viewers and audience can understand about cash flow.

Matt Waller:
So I’ll start with a quote anecdote, not sure what it is. But if you really want to understand the importance of cash flow, talk to a business that has had problems with cash flow.

Craig Willett:
That makes sense.

Matt Waller:
Ask them how difficult it is to call your customers and beg them to pay you early, take calls in from vendors and beg them to pay them later and see how that makes you feel as a business owner. So that’s kind of the cautionary tale of, if you don’t think cash flow is important, think about how hard it would be to do those kinds of things and how that might impact your business, as you mentioned.

Craig Willett:
From a credibility standpoint to begin with and also just a personal—it’s embarrassing.

Matt Waller:
Yeah. Yeah. I mean, it’s humiliating for these professionals and they may have been very successful and still are perhaps very successful, but to have those conversations is humbling, humiliating, any number of things and hard to sleep at night. Certainly cash flow is one of the most important metrics and the real basic thing to look at. And this would be done in even your lowest level of financial statements compilation, it’s a cash flow statement and it’s really understanding where your cash is coming from. And we always look at the metric of cash from operations. Let’s disregard funds you’re getting from the bank. You might think you have a lot of cash, but it’s because you owe the bank a million dollars. So you don’t really want to look at that in terms of how your business is operating. You really want to focus on, “What is my cash from operations?”

Craig Willett:
Yeah. I got a line of credit for a million, so I’ve got a balance of $900,000 in my account.

Matt Waller:
I’m doing great. But eventually, we’ve got to put pen to paper.

Craig Willett:
And pay the million back. Yeah.

Matt Waller:
So it’s getting that basic report, and this is something that’s available in a QuickBooks or some of these other softwares that you can click the button and get a cash flow summary. Sometimes it requires a little massaging and it may not be perfect, but it gives you an idea of, “What am I really generating from my day-to-day operations? Is it really that I have cash because I’ve collected on old receivables, but I don’t have any new sales? So I’m going to run into a problem here in the next 60 days.”

It’s looking at that level of scrutiny of, “Where am I generating my cash? Is it just that I’m delaying payments to my vendors and that’s why I have money in the bank right now?” There’s a lot of underlying components to cash flow. And that’s why I think it’s important to get that under—it’s a basic statement that every business owner should really kind of get an understanding of.

Craig Willett:
And if they don’t seek some help to do that because you can kind of see trends that will help you 60, 90 days from now, so that if you have an impending cash flow crunch, you can go increase your line of credit at the bank if you’re prepared and explain to them why. “Here’s what I’m faced with and here’s how I’ll pay you back. Here’s when it will correct.”

Matt Waller:
Yeah. I mean, getting in front of that is vital for that very reason.

Craig Willett:
Well, banks can’t react as quickly as they used to too, because of regulation. You can’t walk in one day and go, “Hey, I’ve got to meet payroll tomorrow. Can you get me a loan?”

Matt Waller:
Yeah. That’s not—

Craig Willett:
Unless it’s the PPP one.

Matt Waller:
Those are quick.

Craig Willett:
Yeah.

Matt Waller:
We’ll see if we get more of those. Again, it lends to that credibility. Your bank’s going to get uncomfortable if you’re coming to them every six months of, “Hey, I need this or I need that.” It just shows you’re not as business savvy as you probably should be.

Craig Willett:
Great. One other question that I have in the back of my mind, I often think about, and that’s loan programs that are designed for small business to help those that are new. Well, not necessarily new, but younger businesses or smaller businesses, that’s the SBA loan program. What experience do you have with that and how do you feel about that as a CPA?

Matt Waller:
You know, it’s a mixed bag I think. The SBA loan program can be beneficial if you really have a good business idea, I would say. They can come with a lot of strings attached and oftentimes there’s a lot of hidden fees within obtaining an SBA loan. It sounds great—

Craig Willett:
“Hey, I’m going to get a 6% loan, but—”

Matt Waller:
But there’s fees out the nose perhaps in terms of all the things that you have to provide, you’re likely personally guaranteeing these loans.

Craig Willett:
And pledging the collateral. Your house. Your equity.

Matt Waller:
Your house, your car, everything that’s involved in it.

Craig Willett:
And there’s reasons for that, but you have to understand that you’re doing that when you sign. You can’t just say, “Hey, this is a great loan” without understanding.

Matt Waller:
Yeah. I think  a lot of people for some reason think it’s an SBA loan, it’s meant to kick start any business, that idea that I have. And if it goes belly up, well, it’s kind of this government loan and they’ll—

Craig Willett:
They’ll find a way to—

Matt Waller:
… get buried in the trillions of dollars that are up there.

Craig Willett:
But they’ll be knocking on your door the day you don’t pay it back.

Matt Waller:
They will. Like I said, I think if you have a solid business idea, a business plan, a good management team, these can make sense. And it’s a good way to get funding for your business if you can’t tap—you don’t have a friends and family bucket or that you haven’t personally saved that amount of money, it’s viable, but there’s lots of cautionary tales out there.

Craig Willett:
So I take it that you apply it when it’s necessary, but you think that banks in general by their very nature—if they’re serving their community well—they on their own should be able to find a way on their own balance sheet to take these non-government guaranteed ways to help lend to the businesses in the community.

Matt Waller:
Yeah. I think the SBA program is your last resort.

Craig Willett:
Okay.

Matt Waller:
Would be my take on it.

Craig Willett:
That’s interesting, because there’s some people that feel the other way and I think that’s a great view, but you have a lot of confidence. And I think that speaks to hiring the right team to help you approach that. If you’re going to go approach one, a bank, before you go just straight to the SBA, make sure you talk to some accountants that might be able to open doors for you. And based on your credibility and based on some past operational history of the business, there might be a better solution. That’s less costly and less rigorous.

Matt Waller:
Yeah. It goes back to, do you have a business plan? Do you have a budget? Do you have financial statements? All these real basic things. You can go in there and walk in there confidently and feel comfortable talking about that. The bank is much more likely to provide you traditional lending than having to go through the whole SBA program.

Craig Willett:
That’s great. That’s good to know. I think our listeners need to understand what’s available out there and I appreciate your perspective. Now, you can never enter the Sherpa’s Cave without answering one question. What is your greatest failure? And then, what did you learn from it?

Matt Waller:
Well, this is a tough one. There’s been lots of fail—I fail on a weekly basis, maybe daily sometimes. Ask my wife, I’m sure she—

Craig Willett:
True confession time.

Matt Waller:
Yeah. And it was funny. I was kind of aware of the question so I’ve reflected back because you said greatest failures. Man, I have to think about that one. Mine was a true failure. I don’t even know that my parents know this actual fact about me, but—

Craig Willett:
Are they going to be listening?

Matt Waller:
I’m sure they’ll end up listening to this podcast.

Craig Willett:
Okay.

Matt Waller:
I actually failed out of engineering school when I was in college. I was almost through sophomore year and a really bright kid, but I failed. I mean, that was huge obviously. I come from a background of a very educated family. My dad’s an engineer, my brother’s an engineer—

Craig Willett:
So it’s the family tradition you had to uphold.

Matt Waller:
A little bit. And that was when you mentioned kind of, What do you learn from these failures? That was one of the things on the surface. Don’t let other people’s expectations shape your behavior or what you want to do in this world. And it’s not that they provided any overt pressure.

Craig Willett:
No.

Matt Waller:
I mean, I love my folks and my family, they were always very—

Craig Willett:
You seem well adjusted despite the failure.

Matt Waller:
They were always very supportive. But I just realized that this isn’t—I guess innately, I just stopped being interested in what I was learning there, which is, you get through a certain point but then it’s like, “I just don’t enjoy what I’m doing here and just a lack of effort.” I mean, to be honest, it was—

Craig Willett:
How did a budding engineer turn to be an accountant?

Matt Waller:
That was one of the defining things. I was sitting back and saying, “Well, I enjoyed a certain aspect, I got into engineering and why did I initially go there?” I always loved math since high school. Math, for whatever reason, it just sounds stupid, it got me excited. I enjoyed it.

Craig Willett:
That’s great. Because I hate math, but I’m really good at it. And I don’t really like it.

Matt Waller:
I just liked how you can always find a balance. Something equals something else and you can kind of come to an answer.

Craig Willett:
Okay.

Matt Waller:
And so I enjoyed that aspect of engineering, but then there were other aspects that I just didn’t really enjoy. The science, although it involves a lot of math, just got weird to me. I just didn’t enjoy doing it. Hence the lack of effort of, “I don’t know what I’m doing here.” But that love of numbers and kind of where does that lead me?

That was kind of another takeaway of learning about this process of, it’s okay to tell people that you don’t know what you’re doing and literally throwing up your hands and saying, “I don’t know what I’m doing with my life.” That was pretty heavy at the time.

Craig Willett:
So who turned you to accounting? Or how did you discover it?

Matt Waller:
I can’t pinpoint a single person in this endeavor. I would tell you that I talked to a lot of people about it. It was friends, obviously not my family because this is the family secret that I’m unveiling.

Craig Willett:
You’ve heard it here on The Biz Sherpa.

Matt Waller:
That’s right. But in talking to friends, it was kind of vetting that conversation of, “Well, what do you want to do?” And it’s like, “I kind of like the numbers aspects.” Some of them were business majors. And they said, “Man, accounting, finance really sounds like something you might enjoy.” When I got into it, I was lucky to have one professor, John Dallmus, and he’s still actually a lecturer. I don’t know what his official title is at ASU.

But John was the best accounting teacher I’ve ever had. And somehow he made accounting very, very interesting. He wove real-life examples of how businesses use accounting and it really just kind of hit—the light bulb came on and said, “Man, this is a little more interesting than I even thought on the outside. It’s just as nerdy as engineering.” For some reason, this just really hit home. I do have him to thank for some of that and some of the other professors there at ASU, obviously I’m promoting my Sun Devils.

Craig Willett:
No, this is great. Yeah. The Sun Devils, here we go.

Matt Waller:
Yeah.

Craig Willett:
You know this resonates with me. I remember my aspirations were to go to law school. So I was studying political science and economics as a minor. I got into economics and that got in over my head. I remember I got in one course—everything else was good—but I got a D minus in one course. I don’t know why I didn’t get it just a flat out F, but the teacher must’ve felt compassion for me. Because I at least took all the tests and I failed them miserably, but he gave me a D minus and I started thinking, “Do I really want to go to law school?” I wasn’t sure.

That created some uncertainty and I talked to somebody about it and they said, “You know, lawyers who understand accounting do really well. So you ought to take an accounting class.” And I hadn’t given up on going to law school yet. So I took an accounting course, and it’s the first time in college that I never had to do my homework. I could just go to class the next day, I understood everything. It all started clicking. It came naturally to me. Although I sit in there and go, “What am I going to do with this career? I really want to do something else.” But it kind of clicked.

What I take from this is, right, we have our plan for ourselves. I like what you said, “Don’t let somebody else define yourself.” I almost didn’t do accounting because my older brother was doing it and I didn’t want to do what he was doing. So I almost let that keep me from doing it. But I did. He and I took different paths at some point, both have master’s degrees in taxation and both—he still practices accounting, I do other things.

It’s interesting how we don’t have to feel like we have to set out on one path. Just like your friend, who when you ask him every time you see him at a social event, he can’t say what he’s doing. Maybe he’s still evolving. But sometimes in business, we start out with a certain idea and maybe that doesn’t quite work out, but we have to be able to pivot and be able to take that original premise and maybe focus on something bigger, better, and a better opportunity.

Matt Waller:
Yeah. Yeah.

Craig Willett:
And it looks like you did because it seems like you fit this well, because if you’re out there helping your clients, introduce them to banks, help them understand their performance compared to others, and help them enhance their success, what a great asset you are to your clients.

Matt Waller:
I would like to hope so and I will say I went into Accounting and I got straight A’s in every class after that.

Craig Willett:
Wow.

Matt Waller:
Just to let you know—

Craig Willett:
Okay. So you’re not a dropout?

Matt Waller:
That’s right. I don’t want anyone to think—

Craig Willett:
Redeeming yourself for your clients who’re going to watch this podcast.

Matt Waller:
No. This is Mom and Dad.

Craig Willett:
Okay.

Matt Waller:
No, no. No.

Craig Willett:
They didn’t get your report cards? I know now you can’t, you have to get permission to see your children’s report card.

Matt Waller:
Yeah. I’m sure I explained it away. I was very successful after that, but it’s finding what you love to do. Right?

Craig Willett:
Right.

Matt Waller:
And pursuing that avenue. I was lucky to have found that and then find myself in this career 20 years later and really enjoying it.

Craig Willett:
And I think that’s the secret to success. Being able to love the clients and being able to give them extraordinary service, give them value beyond the dollars that they’re paying. Not only for the compliance that you provide, but provide additional insight, provide introductions that can help them, move their business forward. And I think that’s what makes any business a success and any business owner a success. So I’m glad that you were willing to be a guest on our show today, Matt, I appreciate the time you took to be here.

Matt Waller:
Thank you, Craig. I really appreciate it and enjoyed it as well.

Craig Willett:
Well, thanks for joining us for this episode of The Biz Sherpa. I’m sure you will enjoy Matt Waller and we’ll have the contact information for Henry+Horne on the screen if you want to call them. It’s a great firm. One of my sons works there too, by the way. My son Michael. Anyway, this is Craig Willett, The Biz Sherpa. Thanks for joining us today.

Speaker 1:
Be sure to go to our website to access the resources related to this episode at www.BizSherpa.com. If you enjoyed this show, tell your friends about us and be sure to rate our podcast. Craig would like to hear from you, so share your thoughts in the Facebook community @BizSherpa.co. Follow us on Twitter @BizSherpa_co and on Instagram @BizSherpa.co.