Ep01 – Should You Hire A Controller?

Episode Summary

People start businesses to do work they love and are good at. And make money. The problem is they’re so busy doing the work, and then selling the work, and then finding people to help them with the work, the money part often takes a back seat. Join us as we discuss the value of hiring a professional to keep an eye on the money side of a small business.

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Tara: [00:00:00] Hey there I’m Tara Landes. I’ve been working with small businesses for over 20 years, helping them implement the foundational business processes that get them to the next level. From DNA manufacturers to funeral homes. From web-based subscription services to third generation excavation contractors. Lots of business podcasts talk about the big companies. We’re digging into the secrets of the small companies. Want to make your business more fun, more profitable, and more self-reliant than ever before? Lots of people have done it. You can too, and you can start right now. This is the Small Business Foundations Podcast.

In this episode, we’ll talk about the difference between a bookkeeper and a controller. We’re going to explore what a controller does and how they can help your business. We’ll also talk to Kevin Hatch, President of Twin Lions Contracting.

Kevin: [00:01:08] Hey, how’s it going?’

Tara:[00:01:09] He’ll tell us when, why and how he hired his controller, Tanya. I think you’re going to enjoy this. Let’s dig in.

Almost every small business owner is in it for the money. It’s not the only reason they have a business, but it’s got to be top five. So why do so many wait too long to hire their first in-house financial people? A controller goes to school specifically to learn how to keep an eye on the money in a business. On your money.

But small business owners often take the DIY approach to the books. They’re getting their information to the accountant for tax purposes, they have monthly financial statements, the invoices are going out – what more do they need? Well, a lot more, actually. There are a lot of clues to better business performance in those financial statements if you know how to interpret them.

Now, this is the spot in my rant where people point out ‘that’s what their accountant is for’. So, let me ask you, how much business advice did your accountant provide in your last meeting? And how much did you understand? I mean, I’m sure they tried, but often they’re more focused on the tax efficiency of your business.

They’re valuable because they keep as much money away from the government as possible, but they may not be focused on managerial accounting, which is the part that tells the story of how to manage your business better. Also, they can only work with the information you’ve given them. Sometimes small business owners are embarrassed to ask questions when their accountant uses words that they just don’t understand.

Even if you do ask, you don’t know what you don’t know. If you don’t know the right questions to ask, it’s hard to get the right answer. The accountant can make recommendations, but who has time to implement the recommendations they make? When you ask your accountant, ‘what can I do to improve my bottom line by 1%?’

Do they have the specific answer? Do you have the time to follow their advice? Your controller would, that’s what I kept telling Kevin at Twin Lions. Twin Lions is a residential contractor based in Vancouver, Canada. We’ve worked with them on and off since 2011, when Kevin was just about to bring on his friend, Ben, as a partner in the business. We facilitated strategic planning, developed organizational structures, performance management systems, even helped them develop their budgets and job costing systems. You know, foundational stuff. It’s been super fun to watch Kevin develop as a leader and Twin Lions to develop as a business. They’ve won Best of Houzz, seven years running, Georgie Awards, Ovation Awards, and they’ve been selected North Shore News’ Renovation Contractor of the Year, more than once.

Kevin: [00:03:40] Thanks for the confidence boost. Yeah, that’s nice.

Tara: [00:03:43] When starting a business, the leader, or maybe a family member often handles the books. It’s not that much work and the information is sort of private. All they really need to do is a quick tutorial on some accounting software and they’re off to the races.

After a while though, it can become too much to handle. I wanted to ask Kevin about his journey to handing off his accounting duties.

For as long as I’ve known you, until very recently, I’ve wanted you to hire a controller for your business because I thought it was going to offer a lot of value, and as much as I tried, I used all my persuasion skills, but I just couldn’t push you over the line. And then eventually you did hire one. And I was thinking, wouldn’t this be helpful to all of the other people, who are sitting on the fence about this controller thing and have been told it’s a good idea, but are reluctant to spend the money. So that’s what, that’s why I wanted to talk to you today.

Kevin: [00:04:39] The controller one was a difficult decision for us, but ultimately like a lot of the things that you, uh, bugged me about; once we did it, it made things a whole lot easier.

Tara: [00:04:49] The value of the finance department in a company grows as the business matures. The owners realize they need more time to focus on overall company performance, but don’t have the personal capacity to produce the accurate information needed to do so. They start to wonder things like, “which product or service lines are more profitable? How do I know the gas cards aren’t being abused? If I buy that equipment, will I have enough to cover payroll in eight weeks? How much more profit will it generate over time? Should I acquire my supplier who’s about to retire and integrate their business into mine? Or would I be better off just finding a new supplier?”

Kevin at Twin Lions eventually got there too, but it didn’t start that way.

Tell us a little bit about Twin Lions. How did you get started in this?

Kevin: [00:05:34] It was kind of me and, you know for the first bit, and my brother helped me out a little bit, a buddy helped me out, and then I brought on another good friend who eventually became my business partner and kind of hit the ground running at that stage.

And that was, uh, in about a month it’ll be 10 years ago. Yeah, it’s been a bit of a journey and now we’re about 30 people plus.

Tara: [00:05:51] So take me back when you were maybe 10 people, 15 people, how did you know when things were going well?

Kevin: [00:05:59] So in that realm, it felt like we were doing great because we’re busy as all hell and then it kind of got to a point you could kind of see the bank account going well and then going poor. And then when you were trying to do your own, I guess, reconciliation of things, in my own way on a piece of paper with all my stuff spread out all over my living room floor. We’re doing awesome, we’ve got all these projects, but I don’t really know if we’re making a whole bunch of money or not. Like we’re doing, we could be, or I don’t know, we couldn’t be. You know, at that point we were around that dozen or so people. Originally, I tried to learn QuickBooks, that obviously, you know, everybody knows the answer, how that turned out, but it was a bit of a disaster. And so, you know, we kind of grew from there and we added some more management capability, like project manager type of thing. Then I moved completely off the tools and to more of a presidential role.

Tara: [00:06:47] Back then when you’re sitting there on your floor and trying to learn QuickBooks, like a lot of people, everything you’d done up to that point you did it because you did everything. You were the chief bottle washer. If the floors needed sweeping, you’d sweep the floors, no matter what happens. So, the idea of you learning QuickBooks to just do the bookkeeping, I imagine that’s a really common thing for a lot of people to go through.

Kevin: [00:07:08] The reason I did it was because my peers did it. You know, and it was like, okay, well, yeah, of course, I’m going to do the invoicing. Like, I’m the guy that’s running the company, I’ve got to do the invoicing and then of course I got to do bank deposits and, you know, uh, pay my credit card. And, you know, like there wasn’t even really a thought as to somebody else doing it until we got to a point where it was just like, okay, this is a lot I’ve got to get somebody else.

Tara: [00:07:31] Kevin had reached the point where there was just too much work for him to do.

Kevin: [00:07:35] And then reaching out to my peers. It was like, well, you just hire a bookkeeper.

Tara: [00:07:40] It’s time to hire a bookkeeper when the paperwork of accounting duties gets in the way of higher value activities like generating sales and managing people that only the leader can do. A bookkeeper does things like entering transactions into the accounting software, managing accounts payable and accounts receivable, processing payroll, and completing monthly reconciliation.

An experienced, financially literate bookkeeper can often punch above their weight and assist with some of the more strategic elements of the business, like budgeting and cashflow forecasting, but they may need help setting up those systems in the beginning.

Kevin: [00:08:13] We’ve kind of been a company that’s always tried to hire either from within or by close contacts.

So, we kind of brought in somebody and tried to shoehorn them into the bookkeeper role a little bit.

Tara: [00:08:22] That’s how a lot of small companies handle their first overhead hires. They get their tech savvy kids to do their website, they download an employment contract from the internet, and maybe they find a friend or a family member to do the books.

It’s rare that the person has any meaningful bookkeeping experience, but they’re nice people and a good fit with the company culture. Sometimes they grow into the role and sometimes not. This first overhead hire is often a key lesson in a business leader’s life, though they don’t usually realize it at the time. When you cobble resources together that may not be the best qualified or trained for the role, particularly in areas that you have little expertise in, a bit of a self-fulfilling prophecy gets started.

The value in the functions isn’t realized, which leads the owner to believe that’s the most value you can get from those positions. They don’t know what they don’t know. After all, the bookkeeper probably got trained by the owner in the first place.

Kevin: [00:09:20] Obviously it didn’t work. Um, she was great, but it wasn’t her role. So, we’re still kind of dealing with the ghost of Larry, who was the original guy, and we had an accountant, obviously, we needed a corporate accountant to file all our year-end and all that stuff. And so, they started doing some bookkeeping for us, but they’re still kind of following the path that was originally laid out by Larry, and to circle back to your original question, how did we know how we were doing? Well, we kind of just threw our thumb in the air and you know, ‘hey, this looks good, this looks bad’. We, you know, can we hire another person? Yeah, sure. You know, things are busy like let’s hire another person or, you know, can we, you know, afford Canucks season tickets? Yeah, of course we can. That sounds great! And I think part of it was that we were so busy, and we were growing. Everything’s gravy when there’s cash coming in the door, right? And so it was easy-ish to make some of those decisions at that time, because we were just growing. And I think you were the first one that ever really put it into our head that like, ‘yeah, of course you’re making money and you’re successful, because you’re so overworked’ and there’s a huge hole of the amount of people that need to do it. You’re doing two jobs and like that was the first time that I think I’d ever really looked at it that way.

Tara: [00:10:30] You see that fallacy everywhere in small business. The owner takes a salary, hopefully, but they pay everyone else by the hour. Their perspective becomes that if they do the task, instead of farming it out, they’re saving money, but they’re tripping over dollars to save pennies.

When Kevin was acting as the bookkeeper, it was taking time away from his presidential duties. It’s setting strategy, going after clients, managing and developing the team that are going to leapfrog the business ahead. Yes, bookkeeping needs to be done, but lots of people can do it. Only one person can be the leader of the company.

Kevin: [00:11:05] You can kind of have that mentality that I can do everything better than everybody else because I was the one that started this thing, and I was running it, and like, it was one of the hardest lessons to learn and I have a bit of a problem letting go and I think that’s very common with any business owner, right? It’s their, kind of, baby that they’ve started. They want to run it and it’s not necessarily a trust thing, I guess, but it’s, I’ve got to control this because it’s my thing. It’s a lesson that we’ve learned over time that there are people that do things so much better than I could. You know, Will’s a better estimator than I am. Like, obviously Tanya’s a better controller, Manraj is way better at HR, Ben’s better at the operation side of things, I’m better in the presidential role. Putting the right butts in the right seats has been a lesson long learned, but it’s worked out well and it’s allowed me to spread my wings in different ways.

Tara: [00:11:52] But this controller one, this was different. You know, you had someone doing the books, but you were very reluctant as I recall, because you couldn’t figure out what value they were going to bring. Is that true?

Kevin: [00:12:04] Yeah, the controller one was difficult because I guess somebody in my realm with basically zero financial training, other than, you know, what I’d kind of learned over the course of my own journey, was difficult.

We had our accountants. One of them would come into our office twice a month and he would do the entering of the data, he would spit out the invoices, he would give us a P and L. And I thought, yeah, this is great, perfect. And for a while, honestly, it worked, it worked well for us. The problem was we didn’t really know what we were missing, I guess, you know, a few people being like, ‘you could do so much more here. Like, you need to know this, you need to have dashboards, you need to do this’. And it’s like, well, why? Like everything is great. No, this is fine. And then we kind of got to a point where it was like, okay, we’ve we built a bit of a machine here.

Tara: [00:12:52] That machine needs specialists if it wants to run efficiently. When a business first starts, your most valuable player is the person that can do everything – like a Swiss Army Knife. But you wouldn’t build a house with a Swiss Army Knife. You’d get the right tool made specifically for each job. When it comes to the accounting, that’s a controller. A controller oversees all accounting processes and is responsible for timely and accurate monitoring and reporting of the company’s financial performance.

They’re a key player in establishing company-wide financial and administrative objectives, policies, programs, and practices, which provide a sound financial structure and maintain the efficient operations of the business. For the most part controllers look backward. They can tell you what happened last month, last quarter, last year, and they’re there to ensure the accuracy of that reporting. A controller’s duties include managing the monthly accounting cycle, budgeting, cashflow forecasting, and ensuring business policies, accounting standards, and profit objectives are met. The controller collaborates with other senior managers to plan for the company’s success. The larger a business grows, the more complex it becomes, and the more value a controller brings. They provide tactical managerial reporting to the management team, like dashboards, and they weigh in on the financial implications of business decisions. Compared to bookkeepers, controllers are often CPAs; that’s the professional designation of the accounting profession. This gives them the knowledge to perform deeper financial analysis and even assist with tax strategy.

Kevin: [00:14:26] After we did that, we realized we should have done this so much earlier because we could have been looking at this stuff so much earlier. And in all honesty, the controller, for six months, was just fixing stuff.

You know, a controller can potentially be a bit of a higher ticket item. And, you know, like any business owner you struggle with bringing on those overhead type of people, like there’s different steps of your business when you can do that. We just didn’t realize that that step in our business should have been a lot earlier.

Tara: [00:14:56] The roadblock of cost is interesting too. Let’s say you’re looking at bringing in an overhead hire, like a controller, and in the interest of simple math, the person’s going to cost $120,000 a year. Sounds like a pretty risky decision, right? But you don’t have to pay for the person up front. It’s not $120,000, it’s $10,000 a month. If it doesn’t work out, yes, it will have cost maybe $20,000 or $30,000. But if it does work out, the position should pay for itself in efficiencies and savings.

And then there’s the uncertainty of how to hire this person. Kevin knows what a good carpenter looks like because he’s a good carpenter. He’s a good estimator, he’s a good project manager, but a controller? What do they even do? And how can he tell if one is better than another? It’s these kinds of questions that can stop an owner from even getting started on the road to hiring a controller. On the other hand, what’s the downside of putting up an ad on LinkedIn and having a couple of phone interviews? Pretty low. Certainly not $120,000. But it can feel like you’re spending that money just by putting up the ad.

You gotta remember, you aren’t.

Kevin: [00:16:06] Yeah, like that, that was a tough one. I think I remember reaching out to you in the early stages and being like, how do I even interview this person? Like I have no financial background. I don’t know a financial controller from a hole in the wall for the most part. I mean, you know, we just started chatting with people. We put it out there and had some really good and really bad people come back. I think I talked to nine or 11, people kind of over the phone. It was pretty easy to weed it down to those 11. Then it was quite easy once I talked to the people to weed it down to about four.

Tara: [00:16:40] Why was it so easy? Because at first you were like, “how would I even know?”

Kevin: [00:16:44] Just that the ads coming in, you could tell whether the first kind of round was more like, would this person even be a fit in the, in the company? And then once I’d talked to them, you could really get an idea as to what people could bring to the table versus their experience and stuff. And even though I had no experience or what to really look for, you can still get a sense of like, okay, you know, this person is, is not as advertised. So, I think like a little bit of emotional intelligence or being able to chat with somebody helped there. And then when we met with the four, it was, that’s where it got a little bit more difficult because the four we’d already kind of pre-screened, then we talked to, then we met. Two of them were kind of out more on a like company culture and experience fit. I equated them to, uh, a Red Seal carpenter that had only worked on high rises. Well, you know, that person is great in that high rise space, but I bring them into a renovation space and they’re kind of useless. So, two of them were very similar that they’ve done literally kind of one thing, and they didn’t have, what I considered the business acumen to be able to look across an entire company. And essentially as a first controller, you’re looking for somebody to start a finance department. And so not only do you need somebody that obviously has the, you know, accounting skills, but has a bit of the business acumen to go a little bit further with that.

And the other couple of people we met with were great and so then it came down to diving deep into what their experience was and chat with them about what they’ve done and what they foresee themselves doing in the future. Ultimately, we settled on the controller that we have and have seen the most positive hire that we’ve ever made probably, or very close to it.

Tara: [00:18:23] Wow.

Kevin:[00:18:24] Yeah.

Tara: [00:18:25]Wow. I seem to recall she sort of immediately paid for herself.

Kevin: [00:18:29] Yeah. I mean, so she, she jumped in and, and kind of started with some best practice stuff, like a proper budget, sorting out best practices for cashflow, that like she did and we were like, yeah, that kind of makes sense. So, we started doing that and then, you know, and then it was like company budgets and some dashboard stuff and a closer look at chart of accounts and how that all works and essentially getting rid of all the ghosts of crappy accountants past that we had and really creating the basis for a properly run finance department for us.

Tara: [00:19:01] The chart of accounts is the building block of your financial statements. It divides all of your information into revenues, expenses, assets, liabilities, and such. A poorly structured chart of accounts makes it really difficult to know how well or poorly you’re doing on a project or what you can change to improve profitability. Budgets are a plan for profitability. They document your best prediction of how the company will perform over the year so you can compare your forecast to what actually happens and make adjustments along the way.

There’s somebody right now who’s listening to this saying, “a budget? Why would you need a budget? Our work is project based. You can’t predict the future. How are you possibly going to know what’s coming next?”

Kevin: [00:19:42] Yeah, that, that sounds familiar. Um, it’s, it’s uncanny the ability that she has to look at the future and taking, kind of, our numbers and like the months actually line up exactly with kind of what she predicted. And so, we’ve been able to make some pretty significant decisions based on that budget. Just generally having the framework, you can at least plan around it, as opposed to, like I said, chucking your thumb in the air and just being like, yeah, I can do this, or I can do that. And we actually asked her to do a bunch of systems too, like labor forecasting, and like finding out what our capacity for labor is, and how much percentage should we usually have for non-billable, and how we can increase that and finding, you know, different vacation policies. And the amount of special projects and kind of like black ops tasks type of things that we asked her to do early on, was….

Tanya, we would kind of like describe what we want and then she would come back with this crazy excel thing, like a day later and she was like, ‘here you go’. And we kind of called her a ‘showboat’ early on because we thought she was just showing off. And we told her that in her performance review and she was like, ‘it’s just kind of basic’. And, she’s a bit of a wizard with that stuff and it’s allowed us to make a lot of different decisions.

But kind of getting to the biggest thing was like, obviously getting into this year with COVID. She legitimately saved half the company’s jobs. There was no world where me and Ben were going to navigate all the CEWS, CERB, whateverall the acronyms are. That was next level. Like I remember I was on vacation right kind of when the whole thing started and basically her, Ben and myself would meet like daily on zoom meetings, trying to figure out how to navigate this thing. And it basically changed daily. What it allowed us to do is navigate that to the point that we actually kept our entire team. We didn’t let anybody go. We ended up figuring out that we could afford to top up everybody’s wages in conjunction with the CEWS that came in, basically do everything that the government really wanted us to do, which was keep our people.

And then, even though we had didn’t have the work for it because of, you know, site shutdowns, and people getting cold feet on projects and whatever, we then were able to reallocate our people into the community and then do a bunch of community work because we were paying them anyways; might as well, get them to do something for free and to help people. And none of that would have happened without Tanya because like, without her planning, and constantly like rejigging it, and being on the forefront of what was happening with the government and running all these crazy models and pivot tables on Excel, we never would have had the information to accurately make that decision. If you did make that decision, it would’ve just been a shot in the dark.

Tara: [00:22:24] Yeah. And you guys were also, as I recall, under some pretty heavy financial, just even personal financial pressure at that moment. So it probably would have felt even more risky.

Kevin: [00:22:33] A hundred percent. We just invested in another company, you know, growing some other stuff like, yeah, it was the beginning of a pandemic, obviously there’s, you know, panic mode happening across the, uh, you know, the world.

And so, we probably would have looked at mitigating our risk a little bit more. And the way I always kind of look at it was like the people in our culture, in our company, is kind of our cornerstone of who we are and the cost of acquisition and bringing people into that fold and, and training and all that stuff. Like, if we had lost half our team and then basically coming out of COVID had to rehire that team; it’s not easy and probably super costly. And so, that was one area where, you know, she’s been integral and like I said, legitimately saved probably half the company’s jobs.

Tara: [00:23:20] Yeah. And you guys came out of COVID really strong probably in part, not just because of the people, but in part, because you made that choice to give back to the community.

Kevin: [00:23:30] Um, it’s been, been crazy. We’ve grown significantly, and are on the significant upward trajectory right now with both our businesses.

Tara: [00:23:41] So you took a long time to decide to hire a controller and you took the time to find one that fit well with your culture.

Anything surprise you?

Kevin: [00:23:50] What was possible? A little bit like I, you know, more again, because I didn’t really realize what you could do to forecast and plan some of this stuff. I had no idea Excel could be used the way Excel is used, is one thing. Anything that Ben or myself wanted to know about our business, like in a financial sense, or like a planning sense or a, you know, future forecasting sense, we could find out!

Tara: [00:24:18] For the person who’s listening right now saying, yeah, but I have an admin assistant that’s really amazing with Excel. What would you say to that?

Kevin: [00:24:25] It’s great to be amazing with Excel, but you’ve got to know what to put in it, I guess. The general analysis of, of everything is a really interesting one. Like, you know, what’s considered a cost of goods? What’s an expense? And how best to allocate those? You know, some of them, honestly, like she’ll, she’ll go through stuff in her list to me, you know, and then she’ll flip to the summary page and it’s a one pager and it’s like, ‘oh, well, okay, that’s the Coles Notes for me and thank you, I appreciate you dumbing it down for me, and now I understand exactly what you’re talking about’. And then it’s like, okay, now from there, okay, this is the action item. And we tried to do that obviously with, you know, our past people, but they just didn’t have the ability to look that deep into the business while also having the financial knowledge to navigate it.

Yeah, it basically allows me to shoot for those next things that I want to do. And my business partner is the guy that’s always kind of got his hand on my collar a little bit, we’re a bit of a yin and yang in that way – that’s why we work. And so, it’s given Ben the ability to look at the analysis of it and be like, ‘yeah, Kev, totally, that works’ as opposed to kind of me jumping and you know, him having to catch me.

Tara: [00:25:35] I’ve known Kevin and Ben for a decade and they’re such an excellent partnership. Kevin’s a visionary and Ben is all about the execution. Ben has a really important role in the partnership to keep Kevin in check. In the past, they negotiated these kinds of challenges by gut feel and based on their strong trust of one another. It was good, but now they also use the financial data, real data, to support their decisions. With the trust they already have, the data has been a game changer. Another advantage of strong and understandable financial reporting is you can see how the business is performing, even if you aren’t working directly in the business anymore. Kevin and Ben decided to purchase a millwork company and Kevin’s been spending most of his time getting that up and running lately.

Sooner or later, most of the clients we work with, want to take a step back from their business, for whatever reason. Maybe they want to partially retire, maybe they want to try something new. If you’re managing by feel, it’s really difficult and risky to take a step back. Strong financial reporting and a controller that can help you interpret it goes a long way to mitigating that risk.

So, it sounds like you’re happy you did it. What size business do you think would benefit from a controller, given the cost?

Kevin: [00:26:51] Honestly, you can benefit if you’re like four people. It could be me and Tanya and we can run this company. We need more people now because we’re bigger. But if I was to do it again, with a crystal ball and hindsight 2020 and all that, it probably would have been very close to my first managerial hire.

I would have figured out how to do things another way, because it just would’ve set me up to be able to make those other decisions much easier as opposed to be like, okay, I got to bring on an estimator – can we afford an estimator? If we had a controller first, yes, she would tell us that we could afford an estimator, but we can’t have Canucks tickets this year or something like that.

Tara: [00:27:28] Anything else you think we should know?

Kevin: [00:27:31] If you’re looking for a controller versus a bookkeeper, it’s somebody that can dive into the business with you. It’s the seat at the table, like she’s got the keys to the castle, you know? She’s the one that advises us on what’s the best way to do. And you know, there’s no secrets from your controller. And because we are so open with her, she’s right at the ground level of all the decision-making that we make and, you know, ultimately, we’re way more successful because of it. Also, culturally, I mean, Twin Lions is a better place to work because she’s here.

Tara: [00:28:04] Like a lot of small business owners, Kevin started out on the tools doing the work because he was good at the work. He ended up having to get good at the business side of it too. You know, management.

I’ve got to tell you, Twin Lions is a fantastic success story. When I reflected on our conversation, I realized Kevin was using a lot of words that he didn’t even know when Twin Lions first started: dashboards, P&L, cashflow, budgets, chart of accounts, cost of goods…..

If it’s all hieroglyphs to you too, don’t worry. You can learn this stuff.

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