SmartBooks wrote the book on Small Business Finance - Literally! Learn More

All Things Franchising Podcast Transcript

Linda: Hey folks. Welcome to All Things Franchising. This is Linda Ballesteros. I’m your host today. Thanks so much for joining me. As I always say, I’m honored when you take some time out of your busy day and your precious time to spend that with me. So today we’re going to be talking about the outsourcing of the accounting and finance piece for small business owners. I recently read an article that went like this: If you’re like many small business owners, accounting and finance can prove to be a challenging part of running your business. That is why 70% of small businesses outsource tax preparation. 50% outsource payroll. Only 42% of small businesses have a CFO or a controller. And only 40% of small business owners feel that they are knowledgeable about accounting and finance. So that means 60% of the small business owners out there are just winging it. And that may be one of the reasons that there is such a high failure rate in small businesses.

So today my guest is Jeff Provost. He’s with SmartBooks. Jeff is the Chief Operating Officer who oversees the outsourced finance, accounting, payroll, HR, and tax services delivered to franchisees and small business owners. He’s worked with many types of businesses from startup to fortune 100 companies and everything in between. He especially loves being able to work directly with small businesses to help them run a healthy business. Help me in welcoming Jeff to the show. Hey Jeff, welcome to the show.

Jeff: Hi Linda. Thank you so much for having me. Very excited to be here today.

Linda: Well, I’m excited to have you because this is an area that I believe most people when they get ready to go into business for themselves–whether it’s franchising or whether it is starting their own small business to sell their widget–I think this is probably way down the list of things they addressed at the very beginning, and it should be just the opposite. So before we get started Jeff, tell me a little bit about your background and how you connected with SmartBooks?

Jeff: Absolutely. And just to comment on that last piece too, so, no one goes into business to say, “Oh, I want to do my own books. I want to deal with payroll and tax compliance.” You go into business to do what you love. And thankfully SmartBooks went into business to help you with those things and that’s what we love. So that’s kind of how I joined up with SmartBooks. I joined about two years ago. SmartBooks has actually been around for 11 years, but as Linda mentioned in the intro, I’ve worked in a variety of different industries, a variety of different size companies from publicly traded companies to small startups and then through a number of acquisitions and integrations and things like that.

And one of the things that attracted me to SmartBooks was the small business focus. So I love, really truly love, working with small business owners and helping them figure out how to run a healthy business and how to take care of all the stuff that they don’t want to take care of so that they can focus on growing and scaling their business and improving their profitability and things like that. So that’s our mission and that’s really what attracted me to SmartBooks to begin with.

Linda: When you talk about small business Jeff, what is that?

Jeff: There’s a lot of definitions of small and medium sized businesses out there. I think if you ask any business owner they may have a different definition and whatever. So I really think of small business and we kind of categorize and classify small business as anything less than 10 million in either revenue or operating expense. So that’s everything from a brand new franchisee that is ready to sign their lease and on a path to open and their pre-revenue, up to companies that have been around for years and are continuing to chug along and do great things, but not necessarily growing into a $20 million company or something like that.

Linda: So when you start working with a franchise, at what point is the best time to bring SmartBooks into the picture?

Jeff: We’ve actually had a lot of success and traction with some of the emerging franchise brands that are really kind of defining and developing their whole franchise model. So, thinking about how can they best support their franchisees? How can they make sure that they’ve got all of the right players in place that can help them with their finance and accounting and payroll tax and help them with marketing and sales and things like that? So we’ve had a lot of success with these emerging brands and being able to kind of get in early. The benefit to starting early is they can have a little more influence over the consistency of the financials across the franchise network.

Jeff: Now, that said, with more established brands, where we can really add value is in the change management aspects of things and ensuring consistency in their financial management across the network. So making sure that they’re comparing apples to apples, that each franchisee has the same type of accounting treatment for their books so that they know that when they’re looking at the net profit margin for location A versus location B, that they can have confidence that it’s consistent.

Linda: So it sounds to me like you’re partnering with the franchisors to offer that consistent accounting platform, for lack of a better word, to each of their franchisees. Is that right?

Jeff: Yep. That’s absolutely correct. We really strive to be more than just a vendor and we really look to be a partner and to be an extension of our client’s teams, whether that be a franchisor or a franchisee. And so we definitely are looking for ways that we can add value, that we can kind of bring a level of experience and credibility to the table to help them get these different pieces implemented properly. So yes, that’s very much what we strive for.

Linda: One of the services that you offer that I mentioned at the top of the show is HR. So as you’re helping these franchisors, do you help them with HR manuals? Because that’s another area that generally small business owners, they just don’t really get it right the first time.

Jeff: Oh, absolutely. And again, thinking about franchisees in particular. Many of the franchisees that we work with have had a very successful corporate business career. So, coming out of industry and running multi-million, sometimes billion dollar business units within a large organization. And now they’re opening up, maybe they’ve got a license for multiple units or whatever, but they’re opening up a couple units of their own. And now they have to worry about things like payroll and compliance. And considering: am I collecting and remitting the appropriate taxes here and do I have the right posters in my break room and employee manuals and all of these things? And so that’s where the partnership, that’s where we really strive to deliver all of the pieces that you would expect a medium sized business to have in the way of a finance department. We strive to deliver on that outsource fractional basis for small businesses.

At SmartBooks, we’ve got Society of Human Resource Management certified HR professionals, so we can help you build out your employee handbook. We can help you make sure that you’re setting up all of your state and local jurisdiction registrations properly. We can help you implement a payroll system and get things configured. And if you don’t want to touch it at all, we can do a full managed service payroll for you. We strive to deliver all of those pieces and the resources that a larger organization has access to. We can do that on a part-time fractional basis.

So again, we can come in and set this stuff up, and then if you’re comfortable just kind of owning that and running it on your own, then great, all the power to you. And we’re behind the scenes as kind of a safety net for you if you need help, if you have questions. You’re on a path, you’ve hired a bunch of people, things are going great. And then all of a sudden, you have to terminate someone. Well, what do I do? What do I need to worry about? How do I process this? What do I need to think about from a compliance or a legal standpoint? We don’t give legal advice, but we can definitely help you from an HR perspective. We can help with all of the right agreements and letters and be that neutral third party that sits in on the difficult conversation and all of that stuff. So those are the things that we find franchisees really love and appreciate.

Linda: Just knowing that that’s in their pockets, so to speak, and they don’t have to be an expert around HR. So Jeff, when you’re describing this, it almost sounds like it’s a consultant role as well?

Jeff: Yep. We think of things in terms of finance and accounting, payroll and HR, and tax. And so in each of those practices, we have really senior level people that run each of those practices and have all of the pedigree and the certifications and things like that. So again, payroll, HR, Society of Human Resource Management certified folks and certified payroll processors who are up to date on all the latest and greatest technology and process and all of that stuff. And so we do a lot of the behind the scenes back office work, but because we work with so many different types of businesses, we get to see a lot of things.

So we can really kind of serve in that advisory capacity and we can give them the best practices. Here’s what we see folks like you doing, or what should think about, or what you should plan for. Oftentimes we’ll have clients that’ll come to us and they’ll ask us to do something and we’ll say, “You know what? That actually doesn’t make sense for you right now. I understand where you’re coming from and as much as I would love to take your money and do this, it doesn’t make sense for you and your business right now.” And so again, that’s back to that partnership and trying to be more than just a vendor that’s just going to tick some boxes and deliver for you.

Linda: Yeah, absolutely. Now, are you limited to certain states that you can practice in or does it matter?

Jeff: No. SmartBooks has been around for 11 years and we started as and continue to this day as a remote culture and company. Our team is located throughout the US. Our headquarters is in Massachusetts. I’m in Massachusetts. There’s a number of us that are in New England, but we’ve got people all throughout the country. And so pre-pandemic, there were times when being remote was a detriment, right. And we’re used to needing someone, wanting someone to come into the office to do this or that or whatever. And now that’s really proven to be a strength of ours. So we already know. We didn’t have to figure out how to do this work in a different way. We’ve been doing it for years. So we’ve got all of the tools, we’ve got all the technology, we’ve got all the processes geared toward being able to do this remote.

We work with clients across the country. Probably not in all 50 States, but there’s no reason that we can’t. That’s one of the things that kind of endeared us to really kind of focus our efforts on the franchise world is that remote nature of having franchisees that are spread throughout the country and working with a franchisor in a system that is most likely centralized in some way. If not regionally then maybe nationally. So our ability to kind of work and scale up very quickly and work with clients across the country really is one of the things that kind of endeared us to the franchise world.

Linda: So when you’re working with franchisors, do you see maybe common issues that they struggle with and how do you help them with that?

Jeff: Yes. So one of the things that we hear specifically when we’re talking about back office operations, and more often than not, we talk about finance and accounting with franchisors, because that seems to be where the biggest pain point is. And obviously every franchise system is going to have visibility into the revenue, right. So they’re going to need and want to be able to calculate their royalties and everything. And so, everything and FDDs and everywhere, it’s always about the revenue. But it’s really not about the profitability of their franchisees, even though the best systems recognize that and know the importance of that, right, is, happy franchisees that are achieving their goals and making the money that they want to make. And that’s going to help them sell more units and all of those things.

But everything is geared towards revenue. And so, one of the problems that the franchisors will commonly articulate to us is that they really struggle with how to provide the right level of support to their franchisees on their finance and accounting. How much can they dictate and force versus suggest, right? Because they can’t really control every aspect of it in terms of how they keep their books. And if they want to put that new F-250 truck through their business, who am I to tell them not to, right? And so, how can we as a franchisor and as a system kind of provide the right level of oversight and guidance, and then make sure that we’ve got some consistency across the network as we look to help our franchisees improve profitability and all that stuff?

So that’s one of the most common things that we hear and talk about. And the way that presents itself with the franchisees is, many of them have to manually submit their financials. They have to download profit and loss statements once a quarter or once a month and they have to send it to someone and then someone has to process it and look at it. Or maybe they have some other reporting tool where they’re kind of doing all this mapping and then they have to kind of change and map this particular franchisee over to this category and whatever. So the lack of consistency across the network, and then the manual nature of really getting the deeper financial insights beyond revenue is a real challenge.

So one of the ways that we solve that is we seek to simplify, streamline, kind of enforce a standard, to use kind of an accounting term, to standardize the chart of accounts, to make sure that everyone is kind of categorizing things and looking at things from the same perspective. We’ve developed our own software tool that sits on top of QuickBooks. Our preferred accounting system that we use is called SmartBooks Genie, where we can actually connect up to all of these different franchisees. We can look at the financials across the franchisee network. We can look at them by geography and other attributes and really get some great insight into the true financial health of the franchisees, as opposed to all of the manual processes that they previously had.

Linda: And you know, what you’re describing is great for the franchisors, but to be honest, it’s even better for the franchisee because if they’re having to manually generate these reports, then at some point they may wonder, well, what did I buy into because they’re buying the system. And if the system isn’t streamlined, if they’re still having to maintain and track data in Excel, then what is it that the franchisor is delivering? So for you guys to create something that really does streamline that and allows the franchisee to do what they’ve purchased the business for–and that was to just make money–that is great and it lets them know that the franchisor is looking out for them.

Jeff: Yep. Absolutely. And that’s another thing that kind of endeared us to the franchise world. So we’re not interested in the one-time project where yeah, we can make a little bit of money, but then we move on to the next one, right. We really want long-term relationships. And in the franchise world, you’re sometimes entering into 10 year or more agreement. So they’ve got a vested interest in making sure that their franchisees have all the tools to be successful. And we strive to be a part of that toolbox. It isn’t all about finance and accounting obviously, but let’s at least take care of that part and make sure that we’ve got good partner support there and enable them to focus on the other things like growing and scaling the business.

Linda: Right. And clearly SmartBooks Genie is scalable because that’s what you would want. You would want it to be flexible enough that you can add more locations.

Jeff: Yep, absolutely. So the software is very scalable and then there’s our team. The biggest part of what we bring is people. We bring people that go to school for this, that have been trained in this, been doing this for decades. They have all the latest and greatest tools and technology and all that stuff. So our people are actually very scalable too. And we’ve been at this a long time. We know how to hire people. We know how to train them. We know how to teach them the SmartBooks way and to make sure that we’ve got all the right pieces in place to be able to really scale with our partners.

Linda: Do you happen to have any real life stories to share with us?

Jeff: I’d be happy to share a story. And it actually kind of builds on something that I mentioned earlier. So we’ve got a recent franchisee who is coming out of a very successful corporate business career and was running hundreds of million dollar business units within a larger organization and now he’s running three local stores of his own under an emerging franchise brand. He engaged us to help with payroll and HR and also with tax to help him make sure he’s got the right entity structure set up and all of the right things in place from a compliance perspective and everything. We’re doing the full service with him: bookkeeping, accounting, payroll, HR, tax, everything. And then he came to us one day and he said, “Hey, I’m really struggling. I need to figure out how to get benefits for all my full-time employees and I wasn’t really thinking about that. Do you have anyone that you could recommend?”

And so goes back to the partnership-not-just-a-vendor thing. We don’t do benefits, brokerage or anything like that, but we know a lot of people, so we made an introduction. We did the warm handoff with one of our trusted advisors that helps us and a number of our clients out with their health and medical and 401k and those different pieces. And he was absolutely thrilled that we could solve that problem for them immediately. He didn’t have to worry about it anymore. He thought he was going to have to spend a ton of time networking and finding someone and figuring all this out. And instead he made one call to us and we made an intro and all of his problems went away.

Linda: That’s also a perfect example of someone coming out of corporate, having maybe a VP or an SVP position in corporate, but they don’t know all the moving pieces of owning a small business but they still want to operate and offer the things that they were used to getting in corporate. So to have someone like you that is their go-to person, that really makes a lot of sense because you already know them.

Jeff: Absolutely. That’s exactly it. And he was the first to say, “Look, I used to have a whole HR department that I could just go to and they would solve these things for me. And now that I’m on my own, what do I do? Where do I go? They’re looking to me for these answers and I know that these things exist, but now I’m accountable for figuring this stuff out for my people.” And then the other thing I’d say is, and this is not just for franchisees or franchising, but I can’t tell you how many times I’ve been at a conference or talking with a client or a prospect and they’ll secretly confide in me and say, “I have no idea what I’m doing when it comes to all of this stuff.”

And that’s my point. I went into business because I want to do this thing. I want to provide this service, sell this product, whatever. I didn’t go into business to deal with all this other stuff. And there’s so many that frankly, sometimes it’s amazing that they’ve been able to build such a successful business without a ton of financial acumen, but it happens all the time. And that’s where we’re able to really shine and add a lot of value.

Jeff: And then the other person who’s got the curse of knowledge, who took some finance and accounting courses in college so therefore they’re capable of doing all this stuff on their own. And yes, they probably are capable, but are you really up to date on all the latest and greatest best practices? And would your time be better spent on doing this or actually going and making a couple more sales calls or doing some networking or some more recruiting or something else? You know what I mean? So there is an element of, yes, you might have the capabilities to do this, but is that really the best use of your time?

Linda: Wonderful. Jeff we’re down to three final questions. The first one is, if there is someone listening who’s considering purchasing a franchise, what would you suggest they do to prepare for the process?

Jeff: Personally, and I shared this with you before our call too. So I’ve started investigating franchise opportunities as a prospective franchisee myself. And one of the first things I did was make the decision to work with a business broker, a franchise broker. And that was probably one of the best decisions because there is a ton of information out there about franchises, and you can learn a lot, but there’s also a lot of misinformation. So to have that trusted partner that you can kind of work with to help educate you on what you should consider, here’s the steps in the process, here’s the questions you may want to ask and all that stuff is absolutely invaluable from my perspective.

Not to mention there’s so many franchise opportunities out there that it can be overwhelming. And how do you determine which ones are the, quote unquote, good ones from the ones that aren’t so great and whatever? And I feel like brokers are really, really good at kind of reading the tea leaves and also just working with so many different candidates so that they know which ones are good and which ones don’t necessarily have the best reputation. So I definitely think that that’s a great step for anyone who’s thinking about becoming a franchisee: find yourself a good broker.

Linda: And there’s also trends involved as well. Don’t you see the trends play a big factor in this?

Jeff: Oh, absolutely. I mean, right now there’s tons of senior care and a lot of the home services and a lot of these things that obviously with an aging population in the country, there’s some terrific opportunities there. Even with the pandemic, with everyone being home and maybe looking at that gutter that’s overflowing and they’re thinking about having to redo their gutters or all these different projects and whatever. And again, the brokers know this stuff too and can help you figure out, okay, yeah, this particular vertical, this particular industry, whatever, it’s going places. There’s a lot of value there.

Jeff: The other thing that I would actually say in terms of preparing for the process is just really think about what’s important to you. So I know for me, as I mentioned, I’m looking at becoming a franchisee of my own, but I love my job. I’m not looking to buy myself a new job. So I’m not looking to be an owner operator. I’m looking for more semi-passive, semi-absentee type opportunities. So, you need to think about what’s important to you.

Once you figure that out in terms of what kind of role you want to play, then start to think about, okay, well, if I’m going to be an owner-operator, then I probably want to be in an industry that I’m really passionate about. But if I’m looking for this semi passive role, then maybe I want to look at things through more of an investment perspective, as opposed to whether or not I’m personally aligned with the mission of this system. So really kind of do that introspective thought process in terms of what’s important to you. What type of role do you want to play? And then, and only then, should you start thinking about industries and which specific systems and things like that.

Linda: Sure, absolutely. Really good points there. So the second question is what are two traits that make a successful franchisee?

Jeff: Yeah. This one was a good one and I definitely had to do some thinking about it. I think it comes down to two things for me in terms of when I look at really successful franchisees, these are the two things that I see the most. So the first one being courage and the second is perseverance. Courage in the sense of it takes courage to invest in yourself. It takes courage to either write that check or to sign up for that SBA loan and to make that decision to kind of go all in with a system and to really invest in your own business and building equity for yourself and all of those things. That takes courage.

And then, once you have taken that initial step and then you start actually having to operate this thing, it takes courage to try to figure out what do I need to do and how do I, again, if I look through the lens of SmartBooks, I’ve got to learn about payroll and HR and my finances, and I’ve got to worry about tax and what type of entity structure. I’ve never had to worry about any of this stuff before or even know that some of these things exist. And so it takes courage to learn that. And then also to try to find that trusted partner who you can rely on to take care of some of these things for you. So that all takes courage.

And then the second piece is really around perseverance. So it’s inevitable there’s going to be many, many, many challenges along your journey to business ownership. And so you’ve got to just kind of, again, if you start with why you’re doing this to begin with and kind of keep your eye on the prize, so to speak, and then you’re just going to have to persevere and figure out how to navigate through these different challenges and changes and do everything you can to be successful. So those two traits, when I see those, that combination, people are almost always wildly successful.

Linda: Absolutely. I’ve always said that owning your own business, whether it’s a franchise or whether you started up from scratch, it is not for the faint at heart. It is extremely challenging, but even more rewarding. So, as a broker and as a life coach business coach, I prepare them for that right up front. Know that there are going to be some really tough days and you’re going to wonder, what did I do?

Jeff: Yep. And it’s funny because when you look back on those tough days too, in the moment it feels insurmountable. You question why am I doing this? Why is this even worth it? What’s the point? But then, once you’re through it and then you look back on it. Some of the hardest things that I’ve had to deal with throughout my career end up being the times where I learned the most. And so in the moment, it’s horrible. But when you’ve got the benefit of time and perspective, you can look back on it and say, “Oh wow. That’s why I did all this stuff. That’s why I put in all those hours. That’s why I made this bet.”

Linda: Yes, exactly. So the final question here Jeff is, what does the future of franchising look like?

Jeff: That is a fantastic question. So my crystal ball is in the shop, so I can’t tell you exactly what’s going to happen, but I do think that if 2020 is indication of anything, it’s that people are flooding into the franchise business model. There are so many opportunities, so many different types of models and industries that are cropping up. I think we’re going to continue to see a lot of expansion and investment into franchising. I know I followed the IFA and some of the government relations. I know we’ve got a lot of really smart people at the government level that are trying to do things to improve the franchise world and make franchising a great place to be. So I think there’s just going to be more people. I think there’s going to be more focus and attention on making this world more successful.

Linda: Absolutely. So Jeff, one more time. If someone’s listening and they would like more information about SmartBooks, how would they do that?

Jeff: Yep,

Linda: Wonderful. Jeff, it’s been a pleasure having you on the show and I look forward to watching you guys because you’ve got a great business model helping those new franchisors and franchisees to build a, as you put it, a healthier business. I love that.

Jeff: Absolutely. Well, thank you so much for having me, Linda. I really appreciate it. And look forward to continuing the conversations with you as well. So have a good rest of your day.

Linda: Absolutely. Very good. You too. So folks, outsourcing is one of those things that it used to be only the big companies or those companies that were making a lot of money that could consider outsourcing. That’s no longer true. What outsourcing does is it provides you the ability and the time to get out and do what you love to do. And that’s your widget, whatever that widget is. So I’m going to leave you with this quote. Master your strengths, outsource your weaknesses. That’s a quote by Ryan Kahn. Again folks, thanks so much for being with me today on All Things Franchising, and we’ll see you next time.