From Cash Basis to Accrual: Transforming Financial Reports for SaaS with Chris Morgan

Randy Wootton (00:04):

Hello, everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices, where we bring the experts in SaaS to you to talk about what’s going on today and what’s unfolding tomorrow. With me today, I’m delighted to have Chris Morgan, who’s calling in from Nashville. He’s CEO of LBMC, and has an incredible background in accounting, finance, client advisory services, which we’ll talk about.

(00:28):

Really interesting, Chris, background starting out of college, you joined W Squared, spent 11 years there. That’s rare to have that happen. One person stay at one company. Got acquired by LBMC, and then has been CEO for the last three years.

Chris Morgan (00:43):

Yeah. And we’ve been with LBMC for about seven years now. So yeah, it’s been a great ride. Long story short, I did an internship and audit when I was in college at E&Y for three months, and that was all I needed to know that I didn’t want to go down the traditional CPA path. So, very fortunate that I’ve landed this job and it’s been a great fit, and I really enjoy the client side of things, but really the industry and seen a lot of different industries over the course of my career has been great experience.

Randy Wootton (01:18):

That’s great. We’ll dig in a little bit of that in terms of what LBMC focuses on today, and how you’ve seen the evolution of the role of the CFO, some of the recommendations, lessons learned that you have. And then maybe we’ll get into the conversation about CEOs, because certainly congratulations on all your success and always love talking to people sharing the misery. And then go to the speed round.

(01:39):

So with that, Chris, maybe get a little bit more background on LBMC. We know each other because we have customers of both LBMC and Maxio, and your primary focus is on Sage Intact, but you have a broad swath of verticals that you support. Can you give us a little bit of context on how the business is currently structured or divided, and what you’re seeing in the future for LBMC?

Chris Morgan (02:00):

Yeah. So, LBMC was a traditional audit tax CPA firm started back in the ’80s, and then just over the years they’ve added different entities, different service lines, if you will. So there’s HR, payroll, there’s the outsourced accounting group, they’ve got an advisory services, they’ve got a technology group, and they’ve got some other groups as well. And so, really they’ve just been looking to be the front line of supporting all things that businesses need.

(02:30):

My group specifically, W Squared, focuses on outsourced accounting. So we’re a Sage Intact accounting partner and we’re providing basically the people, the processes, and the systems. And from people standpoint, it’s AP/AR, all the way up to controller, CFO level services. We can implement Sage Intact, we use Bill, we use Maxio, Divvy, Ramp, Expensify, basically a really solid tech stack that you would want for really any size organization, especially as they grow in sophistication. And then we just know exactly how an accounting department should look and feel, so we bring those best practices to all our clients.

(03:10):

There’s some nuances and some tweaks based on the client or the industry, but by and large accounting as accounting and really I would say 90% of what we apply to one client just about applies to every client. So, it’s really nice, we’ve got that world machine built and we just replicate that with each client that comes through.

Randy Wootton (03:34):

That’s great. And you’re doing great, 500-plus customers. When you think about your target, we were chatting in our pre-brief that you’re primarily focused on this $3 million to $5 million ARR, but you can support up to $25 million, $35 million. Maybe talk about why is it that you look at the $3 million, and then when they roll off or your relationship shifts at the $5 million, and then maybe at the $20 million, what are those inflection points that CEOs or investors are looking for from your services?

Chris Morgan (04:05):

Yeah. So, I would say on the smaller side of it is that inflection point where there’s now enough complexity or there’s been complexity where they’re having difficulty keeping track of what they should be doing. They’re probably most of the ones that we see up to that point, zero up to the $3 million to $5 million are really mean cash basis, so you’re seeing a lot of lumpiness within the financials, and they now need to get to a point where they’re really looking at this from an accrual standpoint, and they’re getting the waterfalls instituted and more professionalism and sophistication.

(04:38):

Really, what really comes down to the inflection point is really what I would say more transaction volume from the number of customers, the number of invoices that we’re sending. If you have 500-plus customers but you’re invoicing annually, first monthly, that’s a different animal. But if they’re all monthly or they’re all quarterly or there’s a wide spectrum along there, that’s really where it tends to be like, “Okay, do you really need people that are fully dedicated to it or do you just need to find better systems?”

(05:12):

So, we tend to try and go the better system standpoint, and actually since you and I last talked a couple of months ago, we actually picked up a client that’s in the $15 million ARR space and they’re heavy in acquisition. So we’re basically coming in. they, I would say, were as modified cash at best. There was a lot of inconsistency, so we’re having to recreate some of the waterfalls, validate some data that also coincided with private equity get involved, getting through their first audit. So it’s been a pretty big chunk to bite off at this beginning. But once we get it cleaned up, it’ll run pretty well from that standpoint on.

(05:55):

So I think it’s something that we can hang on to. Close to that $25 million, $30 million range and probably higher, it’s just getting those processes in place. And having a great client relationship where they understand that we’re coming as the experts and they’re giving us a lot of autonomy to come in and fix a lot of things.

Randy Wootton (06:13):

That’s great. And I think that’s what we find is often a founder, at least in B2B tech, which is where we focus our ICP and we focus our energies. It’s often a technologist, an engineer that’s founded it. They will often have their uncle who’s their bookkeeper doing cash accounting, managing it out with a checkbook. And then when they take professional money, with a seed, series A, investors come in and say, “Okay, hold on a second. We need a little bit more governance, compliance and predictability in terms of the reports you’re going to be producing.” And so it sounds like that three to 5 million zone is consistent where we see it as well where they’re bringing on an outsourced partner of a CPA firm or a fractional CFO.

(06:55):

You have had some great success with companies staying with them all the way going public. I think it was one SaaS company so far that’s exited, you’ve worked with multiple healthcare companies, so help me understand that inflection point. So at $20 million, $35 million, they probably have a CFO on staff, they have some finance people that are doing some billing and AP/AR, or is it just so different for each of them that there’s no consistent way of thinking about the services that you offer when there’s a CFO in place? How do you think about that relationship?

Chris Morgan (07:24):

It really just differs from client to client. I’m CFO of three SaaS clients today. But if there’s a CFO in place, my team is there supporting them. There’s another SaaS company that we’ve had that I’ve stepped in and helped from time to time in the CFO spot when there has been a gap or they’ve needed somebody. But really since going back all the way to 2009 when they started as a SaaS company, my team has been involved helping on the frontline, and there’s either been a VP of finance or a CFO they’re supporting and that’s totally fine as well.

(08:01):

I think that client in particular needed to do a lot more capital raises. They needed a little bit more of a handhold through board meetings and just wanted somebody that was there full-time, more from their comfort level because they didn’t have anybody that had that expertise. And they weren’t really getting that a lot from their private equity group either from a level that they were comfortable with, and I think part of it was they didn’t want it to be obvious that they didn’t have that expertise in house, so they wanted to solve that for them.

(08:34):

So it really just comes down to individual need and feeling like the structure and support that they ultimately want. But there really isn’t one rule across the board with all our clients. I think if you’ve got something in place and it’s working, and everybody’s getting the information that they want, and the business is heading in the right way, whether we’re involved or whether we’re involved in just a fractional level, even if it’s not the CFO spot, but I’m always proponent of don’t break it if it’s working.

Randy Wootton (09:10):

But in some ways, and this is maybe a segue to the next set of conversations around lessons learned, recommendations, you’ve seen a lot in your years. I think there’s probably, having sat on a couple of boards and worked with a bunch of early stage folks, they don’t even know what the right questions to ask are. And so, when you think about asking questions that are specific to your industry for B2B SaaS, what are the things that you find when you’re working with those early stage founders where you’re like, “Look, you really need to be thinking about this in terms of how you set up your financial operations and think about representing your business so that you can do capital raises?”

Chris Morgan (09:43):

Yeah, I think the biggest thing is really most of the time what I see is cash basis. And you hear it all the time: cash is king, and that is certainly the case. But if you don’t understand what customers are rolling off and you can’t really say what revenue your customers are bringing in from an MRR and you don’t have the waterfall, just some of the basics that and right, you need to have those waterfalls to really be able to run standard metrics to ultimately get to MRR and ARR. You’re going to be found out pretty quickly when you’re talking to somebody about potentially raising money or potentially trying to sell.

(10:22):

And the reality is you’re going to take a lot of black eyes through a diligence process if you don’t take the time to figure that out on the front end. That’s a less stressful thing to do it at your pace on the front end then to go through that pain either through raising capital or trying to sell.

Randy Wootton (10:41):

Yeah. We were talking, I reminded of this quote from a national law firm who says: the number one deal killer, the thing that kills deals is accounting errors, which you’re just like, “Really?” And it comes down to, I think it’s primarily around for B2B SaaS, is revenue recognition and reporting, and having confidence in what you describe as a waterfall. It’s where’s everybody, every customer? How have you recognized that revenue for the subscription, for the professional services? When do you collect the cash? But that then ties into, of those set of customers, what’s your gross retention going to be and what has it been historically? And then net retention. All of those key metrics that investors investing in is they’re investing in revenue streams, and if you don’t have the accounting in place, then it can be just horrific.

(11:31):

I remember I was chief strategy officer at a company. I sold a company which actually had SaaS Optics, which is legacy Maxio, and it made the acquisition go pretty well. I was chief strategy, we did a bunch of M&A. And I remember having one company, it was 10X the size of this other company, they were on SaaS Optics, and we spent one-tenth the amount of time in dollars forensic accounting. So for the other company, we spent 10X the time because they had contracts basically in filing cabinets. We were trying to figure out what was going on, and it almost killed the deal.

(12:03):

And I’ll tell you the amount of time as the acquirer and energy we had to spend on due diligence, forensic accounting, it made it you’re like, “Really? We’re going to spend this much money on the deal dynamic versus the acquisition?” But I think to your point, if you’re not taking care of that, if you’re not building your back office, you obviously want to focus on your go-to-market, tech, and have that sorted out, drive revenue. But you also need this investment in tech and process, but the back end to help support running your operations and then future growth.

Chris Morgan (12:32):

Yeah, it’s going to catch up with you at one point. And accounting is always the afterthought. And on some level we all get it. Obviously, having a product and then growing the business are two key things, but you really also need to understand how much you’re growing. Are you just replacing customers that you’re losing and you’re not growing as incrementally as you probably should? All of those things. And they’re all the things that whenever you go through due diligence, whether it’s a sale or just an investment that private equity or a buyer is going to pick apart.

(13:09):

I’ve been on both sides of it where we’re coming in and cleaning up what is a mess because private equity’s gotten involved, and it’s a lift because you’re trying to get a lot of it done in a very short period of time. As opposed to get out in front of it. If you think you’re going to do something, then it’s probably time to get somebody involved. And I’d be looking at doing that 12 months out. That way you have some consistency as well. Because ultimately, if you get somebody involved to clean it up, they’re going to have to draw a line in the sand and go, “Okay, we’re going to get cleaned up to this point on what it really should be, and then month over month you’re going to see some trending and some consistency.”

(13:52):

And so, in any SaaS company you should be able to start to see that hockey stick growth. And so that’s a massive red flag if you’ve seen all these peaks and valleys on the face of the financials month to month.

Randy Wootton (14:06):

Yeah. Gosh, we’re backed by effectively a PE firm, Battery, which brought two companies together, SaaSOptics and Chargify. And part of the reason I wanted to join this company was because they wanted to do ongoing M&A. And we’ve looked at a bunch of deals over the last two years I’ve been here, looking at one just recently. It’s fascinating you say that about the churn and the net ARR, because they have pretty good growth on a quarterly basis in terms of new ARR, but their churn, I mean, the gross retention is in the 70s. And when you look at the net ARR ad per quarter, it’s not that much.

(14:39):

And so, I do think this understanding of churn by product, by segment, and so now we’re going in, we’re double-clicking down and looking at the different segments and saying, “Oh, well this segment, if we looked here, that’s actually one we’d be okay with discounting in what we will pay because we think it’s going to go away. And these other ones we’re more interested in.” But I do think that waterfall chart that then you’re able to do that segment-based analysis really helps you, one, run your business better. But also as we’re talking with these different companies, that’s the thing we talk about is the ARR, where’s it coming from? What are they adding? What’s happening in terms of new bookings versus expansion? What’s happening in lost as well as contraction? So all ties into that core set of reports.

Chris Morgan (15:25):

Yeah. And I think if you’re not seeing that information in a timely fashion, and in a form that can be digestible, you’re not looking at that. And if you are, it’s probably already happened two or three months ago and you’re like, “Oh, I wonder what happened here.” So, there are things that you need to be looking at, certainly at a minimum on a monthly basis so that you’re keeping a close gauge on that, for sure.

Randy Wootton (15:49):

Great. And before we talk about the changing skill set of modern CFOs, in our pre-brief, we also talked about order to cash being one of the lessons learned that you find. And you introduced your company as one who focuses on people who are often just doing cash accounting. Talk a little bit about the order-to-cash cycle, and then we talked a little bit about revenue leakage and how that plays out with different types of pricing models.

Chris Morgan (16:12):

Yeah. I think we see it a lot. Certainly you’re seeing this kind of hybrid, I wouldn’t say more often than not, but just whenever there is consumption and variability in the billing. If you’re just focusing on cash, I’m sure there’s revenue that’s being left on the table. So there’s also this: how should we really be capturing things on a consumption model? And on the tiered pricing, they might be like, “Hey, we’re going to give you 100 submissions over a 12-month period. And then if you go over, we’re going to charge you $3 an extra submission.” And if you’re keeping an eye on that, are you actually booking it monthly on an accrual basis and making the adjustments? There’s a lot of different ways and nuances that you should look at it.

(17:03):

And I wouldn’t necessarily say there’s one way right over the other, but you really should be looking at it and doing something consistently. And I think if you’re just looking at it from a cash basis standpoint and then doing true ops, A, I don’t think you’re doing it consistently, nor are you really understanding, “Okay, what should I really be pricing it for the next year?” Because they’re probably way over. They could be way over on the tiers and you need to really be thinking about, “Okay, we should be pricing this differently so, A, we get more of that recurring revenue on the front end, and then resetting what these tier levels look like.”

(17:42):

Again, it’s going back to the cash basis. I think when you get into different revenue streams, different products, the different pricing within that consumption model, things start to get really complicated and can be hard to keep up with. And if you don’t have somebody that really understands the SaaS industry, then you’re going to be in a real bind.

Randy Wootton (18:03):

Yeah. And I think with usage or consumption based models in particular it gets, as to your point, gets crazy complex. And then you have this whole revenue recognition. Do you do it on one month times 12? Do you do the trailing 12 months for usage? Do you do T-three times four? We actually have moved on our business to trailing three months times four because we were getting a lot of volatility on our usage on a monthly basis, one month times 12, where you’re like, “What’s going on?” Because it would go up and down as you try to smooth it out. But if you look back just over the full 12 months, so trailing 12, it wasn’t representing or capturing the growth.

(18:39):

And so, it is very different than you buy a seat once a year as you have this usage playing out over to your point, number of subscriptions, or people might think of the old data plans with cell phones.

Chris Morgan (18:50):

That’s right.

Randy Wootton (18:51):

You’re consuming a certain widget, and I’m getting pinged by my cable provider in my house in Haley because not on an unlimited plan, and they keep sending me notes like, “Hey, you’re about to exceed your usage, do you want to upgrade to the next plan?: But it’s that same mentality applied to B2B SaaS, with the next level of complexity is B2B SaaS is hooked on ARR, and recognizing that revenue in that way as ARR annual recurring revenue. And so there’s some nuances and there’s some judgment. And to your point, having a partner who knows that, who then sits with you during the board meetings and then also during the audit, right? So you pass the audit. Makes a big difference.

Chris Morgan (19:36):

It’s big difference. And I think it’s really consistency. And to your point, not all businesses are the same, and you really want to have somebody who’s going to take the time and really dive in and understand the business and the nuances around it, so they can better guide you on how all that should be captured and reported.

Randy Wootton (19:55):

Awesome. All right. Well, let’s shift to the changing skillset of modern CFOs. Obviously you’ve been a CFO, you’re A CEO, you’ve met a bunch of CFOs in your career to-date, 20-ish years. What have you seen that have been the biggest changes in the office of the CFO, and the types of skills that modern CFOs need to be embracing and developing?

Chris Morgan (20:19):

Yeah, I think the biggest thing that we’re probably seeing a lot is, two-pronged, I would say since COVID, there’s been a mass exodus in the profession. And so, we’re starting to see people that are moving into these roles that are either first time doing it or don’t have a lot of experience in that role, and they tend to be more on the financial analysts, capital raise, budget modeling standpoint. And I think that’s okay as long as-

Randy Wootton (20:53):

Versus more of the controller, core accounting, what you find often CFOs will come out of that. Versus through your finance side is I think of those as the people coming out of investment banking-

Chris Morgan (21:04):

Exactly, yeah.

Randy Wootton (21:05):

… or they may be the analyst at the firm that drops in the CFO role. So sorry for interrupting-

Chris Morgan (21:11):

No, [inaudible 00:21:12]

Randy Wootton (21:11):

… but on two questions, why do you think there’s been a mass exodus of people?

Chris Morgan (21:15):

I think that accounting’s always been very detailed oriented. You’ve really got to get in the weeds, you’ve got to make sure the numbers understand the numbers. And so I think a lot of people just have gotten fatigued from it. And it’s also impacting at the bottom end of the profession. We’re always actively recruiting, we’re growing a lot just our individual firm, and we’ve seen enrollments go down 50% at universities for accounting. So, I think it’s all these things tend to be cyclical, but right now people just don’t have the appetite to do it. I mean, I think that’s just the bottom line.

(21:57):

When I was getting into accounting and very much locked out, landed at the company that I did, for me it was always like it’s job security. Accountants are the last people to get fired. I know I’m always going to have a job. There’s always going to be a need for accountants. And I think people just want to do something else where there is this instant gratification, you’re not in the weeds and the details as much as you are in accounting, and so you’re seeing people fall into different things.

(22:29):

And I think from the CFO standpoint, a lot of my controllers as well are, even today, really advising CFOs more than we traditionally have because they don’t have that accounting expertise. And I think it’s okay as long as you have that in your team, that if you don’t going to get found out and you’re going to get in some hot water at some point, especially if you’re going through audits, because there’s still that accounting acumen that you need to make sure that things are getting accounted for correctly. Especially if you’re doing it on accrual basis.

Randy Wootton (23:07):

I think that’s a really interesting point. I’ll tell you, I actually had to let go of a CFO at one of the companies I was at because they came out of that finance investment banking type of background, and I just simply asked, “Show me the cash, and 30 days later was still struggling to give me my 13-week cash forecast.” And I was like, “I can’t not have the controller oriented CFO enroll as a starting point.” I certainly love having the person with the FP&A chops who can do the modeling, but if you can’t get the three financial statements sorted out and tell me what’s happening with cash, especially in a … We were talking a little bit earlier about in the order to cash, but the whole understand your cashflow management, and when your burn is, your zero cash date, and when you’re going to need more money.

(24:00):

And in many ways, as a CEO with your CFO, that’s one of the top things you’ve got to focus on is management of investments and when you’re going to go out for money and how much are you going to take, and it all starts with cash. And I I have a CFO now who came out of a PE background, has been multiple times CFO, and we are just totally aligned on cash management is the primary thing.

Chris Morgan (24:21):

Yeah. You’ve got to do the budget and modeling for sure, but I mean the books need to be closed every month. There needs to be an accounting discipline and a financial discipline around everything being reconciled every month, and having those balance sheet racks, the cash runway, understanding what the cash burn is, and being able to forecast that out. And I think even the accountants do that, it doesn’t have to be a financial analyst to that point because they’re in their reconciling cash. They have the schedules, they understand deferred revenue, they understand prepaids. They understand and can explain why, “Okay, we only burnt $200,000 this month, but we burnt $400,000 this month. What happened?” “Well, we had two prepaid renewals that were 100k. That’s exactly what happened.”

(25:15):

So, we do with that all the time and we have a really great group of accountants. And we’re not just bookkeepers, not everybody’s necessarily CPAs, but they’re all degree accountants, and so they understand that expectation. Not only the month end close piece, but the cash burn, the cash runway. And we say we’re audit and due diligence ready at any point in time, and I think that’s important. I think private equity has always been really active. It obviously becomes a little bit more cyclical, but it seems like there’s a lot of activity all the time, and so I think there’s a lot of value to being ready for that at any point in time.

Randy Wootton (25:58):

That’s great. One of the things we talked about, which is this, especially these folks that don’t come with the controller back without the controller background, what do they need to be focused on? You were talking about the accounting acumen. And what specifically I think you were calling out, which is so helpful, is you’ve got to understand how things were booked and when you’re managing the month end close, and then be able to provide judgment in terms of: is there an issue? If there’s an issue, where do you look? Having recommendations with regards to how to fix it. And then coming to the CEO before the board meeting to provide some advice and insights in terms of what you could do here, putting it into context in month over month, quarter over quarter, year over year, by segment, by product by region. There’s a lot of curiosity and motivation. You’ve got to have the motivation to dig and explore and have a point of view.

(26:49):

And what you don’t want to do is walk into a board meeting as a CEO and have a CFO next to you and have the analyst on the other side who are looking at the same numbers, who their whip-smart Excel jocks are going to come in and beat you up and take you to, I call it, math camp without you already having a point of view in terms of, well, what happened? Why did it happen? What are the set of things we can put in place? It could be pricing, it could be packaging, it could be churn, et cetera.

(27:12):

And it sounds like that was one of the things, when you talked about the changing skillset of the modern CFO, is that in your team in particular, but you’re finding that there’s this intense demand for data across all functions. And so, the CFO is at the intersection of all this information. What do you recommend CFOs do when they’re in the B2B SaaS where we have all this data? I mean, that’s the advantage and disadvantage. You have so much data, but it’s hard to make sense of the data. What are your recommendations for how to manage that and be successful?

Chris Morgan (27:43):

Yeah. And I think the accounting and finance function, anything that smells, looks, feels accounting ends up falling into accounting, whether it’s a payroll, HR thing, or something else. So it’s a really tough balance, and I think the best thing is just having a solid team around you no matter what that looks like. Because if you can get into a cadence of going through the data and getting it into something that’s digestible and everybody understands. And I think whoever, whether it’s department leads, the ELT, or the board, whatever different variations of that is from a reporting standpoint, have those conversations, figure out what it is that everybody wants to see, and get that built in a regular cadence, whether that’s weekly for some, or monthly for others, or quarterly for others if it’s quarterly board meetings.

(28:40):

And typically what I would say, what I’ve been trying to do is that a lot of the times it’s the same information. There is maybe some somebody needs something else, or some information is sensitive so you’re going a level deeper. But build something that’s repeatable, and then get whatever templates it is, and then populate that same information. Because I think the big thing is digestible information and consistency in what they’re seeing. People are like, “What am I looking at now?” People were like, “Okay, this looks different than what I saw before. What’s going on here?” And you should be able to do that in accounting. Whether it’s doing something in Excel, building reports within an accounting system, which I would always recommend is the better way to go. Or within Maxio, whatever you’re pulling out, or other third-party system, there’s always some standard reports that you can either build or produce and generate on whatever cadence you need to.

Randy Wootton (29:43):

Yeah, there was a lot there. And I think just that understanding of moving, we described it before is from the back office to the front office. How do you become a strategic partner, not just for the CEO, but the ELT? And at the end of the month, I think the thing that I really like is when a CFO or the FP&A person working in the office of finance is able to provide budget to actuals and say, “Hey, at the end of the month, this is what we thought we were going to spend along these different dimensions.” Mostly it’s marketing dollars, because there’s a lot of variability, but even on your hosting costs, et cetera, budget to actuals. And then the things that are most controllable, or dollars for people, and T&E, et cetera.

(30:23):

But I do think, to your point, that the other really important capability of the finance team is to have consistent representation of the numbers. So, I know one of the big challenges when you go to investors, if you miscategorize something, or you had your ARR not appropriately recognized, those Excel jocks will be there and they’ll say, “Hey, well, last quarter you went through and said Q1 gross retention was X, 88%. Now you’re coming in saying it’s 84% or 83%. What happened?” And so then you go to math camp and you have to explain it and show all these things. So, the more you have a system that you can trust and a reliable process to close.

(31:04):

The other thing I would say, Chris, we didn’t chat about this, is I do think, again, I’d be happy if everybody in the world bought Maxio, but the difference between having a tool that allows you to get access to the information early in the month around ARR, versus having to wait until you close the books, which is for you guys, you maybe go faster than most eight to 10 business days is what I hear my CFO says, tries to get done six days. Most companies are in that 10 days, but then you only have two weeks and you’re working with the spreadsheets.

(31:34):

And so, I think that you’re going to close the books, you’re going to figure out the cash, and that’s the number one thing as we said. But it’s really that insights that you get by looking at the ARR and what’s happening by product, by segment, by region, where you start to understand: do you have a working business or are you struggling in certain areas? And that’s where someone like you and your team is really able to provide value to the technical CEO who doesn’t even know how, not because of any criticism, but just that’s not what they’re trained in, they don’t know how to think about the business through that lens.

Chris Morgan (32:07):

Yeah. And I think the waterfalls and the revenue piece is always the hyper-focus for SaaS companies, as it should be. And really the rest of it is really not that complicated if you get that piece right. And so, depending on when you’re doing the billing and if you’re doing it at the beginning of the month, and that’s usually the part that we jump on pretty quickly, and try and get that figured out. And make sure we’re dotting our Is, crossing our Ts, making sure if something fell off, did it really fall off and it didn’t just get missed? Was there really upsell on this one customer? Things like that. Because they’re the little things that matter. And that’s the visibility that everybody wants to see. Is the company growing? Are they cross-selling? Are they retaining their customers? Things like that.

Randy Wootton (33:02):

Yeah. And the one piece of advice I’d give as an English major is CFOs being able to translate the data into pictures, compelling pictures in terms of trends, or stacked bars, or a picture is worth 1,000 words, of course. But I think sometimes CFOs are like, “Here, let me show you my model.” And I look at it and I glaze over. But if you can show me the trends by different dimensions, I can handle complex two-dimensional, dual-axis graphs. But it just makes for communicating with other people who aren’t accountants, being able to do data representation, data visualization I think is a core skill of the modern CFO.

Chris Morgan (33:47):

100%. And I would echo that and just say less is more when you’re presenting to the board, for sure.

Randy Wootton (33:53):

Yeah. I describe it as breaking into jail. You don’t want to show something because you want to look smart and then have them go, “Oh, well, let’s dig here.” You’re like, “Oh my God, here we go.” You’re opening up spreadsheets and you’re trying to figure out where the number came from and why it’s different.

Chris Morgan (34:10):

Yeah. And honestly, even if you’re in a three, four-hour board meeting, there is so much to cover, and it’s not just finance accounting. Obviously that plays its role, but you want to be able to hit the high points, talk about the things that me talking about. But 90% of it can be just, to your point, presented in graphs from that standpoint and not just throwing a whole bunch of numbers at everybody.

Randy Wootton (34:36):

Yeah. I think there’s something you’re just making me think of. You almost want the finance section of the board meeting to be wrote and you cruise through it, because you’ve closed the books in a reliable way, I always write up an end-of-month report in terms of what’s happened across the business. We provide the slides ahead of time, which are the summary of the financial performance and the Excel file, what’s going on with the ARR. And so, I’ll lead off of the board meeting and say, “Hey guys, we know these are the three things that are issues. We’re going to dig into that on the operational side. But here’s where we are with cash. Here we are against our debt covenants. Everything’s good.”

(35:13):

And often the investors are like, “Yep, we agree.” And I think that comes from, one, my CFO being great and working with the investor analyst to get to the set of slides that we agree are the way we’re going to represent the business.

Chris Morgan (35:24):

100%.

Randy Wootton (35:25):

We’re giving them information ahead of time. So then what you’re not doing is spending all your time cutting through the PnL in the cash model. And instead, maybe that could be frustrating for CFOs because they’re like, “God, I spent so much time closing the books, I represented all this information.” But what you want to talk about is, “Hey, new bookings are slowing down. Why is that? Let’s go in and talk about win rate and all the other things.” So, it’s almost like you want that first part of the board meeting where you’re going through financial results to be low stress and it’s just you knock it out. You do it because you’ve got to have the conversation as financial, fiduciary responsibility, but you don’t want that to be the place where you end up spending the three-hour board meeting.

Chris Morgan (36:04):

No, and it should be, to your point, it should just be informative on where the business is today. Because if there’s something amiss, assuming the financials have been done accurately, presented properly, whatever the issue is for losing customers or the revenue going down, or, “We’ve had these five customers that didn’t renew,” that’s not a finance and accounting issue. That’s a business issue that we need the board and board, the ELT or whoever’s in there needs to be talking about, “Well, how are we going to address this? What is the problem? And how do we fix this going forward?”

Randy Wootton (36:41):

Well, I think that’s the net-net from our conversation, Chris, is this evolution of the CFO from a back office compliance officer to this strategic partner who makes board meetings go super smooth.

(36:52):

So with that, I always like to close these conversations with the speed round. Two components: one is your favorite metric and why. Second one, what’s your favorite book and why? And so, you’re an accountant, everyone wants to know what is your favorite metric that you look at most? What is it and why?

Chris Morgan (37:07):

Yeah, I think for me it’s gross-net retention and churn. I think if a client is keeping their customers and growing and they’re not losing business, then that’s a great business, especially if they’re hitting those two really well. And hopefully they’re on the other side of it they’re not losing customers, they’re growing and adding customers as well from that standpoint. And over the course of just all the different companies I’ve worked with, and certainly in the SaaS industry, those two things always tend to hold true. They’re not losing customers, they’re typically always adding customers because they’ve got a great product and their customers love them. And so, we can’t operate in the same realm from that standpoint. Customer referrals to other like-minded customers, they [inaudible 00:37:56] need that same product is how we grow our business, and you see that a lot in the SaaS world as well.

Randy Wootton (38:01):

Yeah. As we were mentioning earlier, gross retention being such an important metric that contributes to your net ARR add. But I would say my experience even in this last two years working with a PE-oriented company, the thing they’re focused on, and it may be because stage appropriate, they’re looking a little bit bigger than the early stage where you’re primarily focused on bookings growth, they’re looking at gross retention. And I think for early stage founders, if you’re a technology leader, you’re out there, you’re the evangelist, you’re selling, you’re closing the first deals, you’re doing everything you can, customize in the product to make it work for those customers, and you get consumed bookings growth. But when you hit that inflection point, a million bucks, two million bucks, that’s where you got to be able to show, “No, no, no. Product-market fit isn’t just about getting someone to buy you. It’s about keeping someone with you because of the dynamics with SaaS, you should spend all this money to acquire customers. The payback comes in the lifetime value.”

Chris Morgan (38:53):

That’s right.

Randy Wootton (38:54):

So the gross retention shows that you have a business model that is working and will generate profits over time. I mean, that’s why Salesforce does so well. Most of their business comes from install-base predictable revenue. The percentage of new logos is actually relatively small compared to their total revenue. And I think that’s what every SaaS CEO eventually realizes. It’s about getting new customers, for sure, but you don’t want to have that leaky bucket. You want to secure and expand your current customer base as a primary area of focus.

Chris Morgan (39:26):

Yeah, 100%.

Randy Wootton (39:28):

All right. And then just last question, favorite book and why? Doesn’t have to be a business book. It could be a personal book. What do you do?

Chris Morgan (39:35):

Yeah, book reading is a leisure thing for me, so I’m not reading business books and self-help books. So, I’m currently reading The Grey Man series, which a movie came out about based off the book a year or so ago. But it’s basically like a secret ops book where there’s somebody that basically goes undercover and is working behind the scenes in really remote areas, and either trying to help somebody out, or basically right or wrong from that situation. So, I think there’s 15 books in the series, and I think I’m on book 10 at this point, so moving through it slowly. I’ve been reading them for about a year, but I haven’t picked one up for the last couple of months. Work’s been busy. But that’s usually what I like to do just to kind switch off and usually last thing before I go to bed if I have time is read a little bit.

Randy Wootton (40:35):

And so this special ops guy, he isn’t an accountant is he?

Chris Morgan (40:39):

No, no. Not at all, no.

Randy Wootton (40:42):

I thought that was going to be the final piece was, “Yeah, and he’s an accountant.”

Chris Morgan (40:46):

One thing, what I like about the people I work with and the work that we do is none of us are really traditional accountants. They’re all extroverts and all do some interesting things. I played tennis in the US at Murray State, and that’s how I ended up in the US to begin with. And then I did Spartan racing for two or three years at a pretty high level-

Randy Wootton (41:11):

[inaudible 00:41:12]

Chris Morgan (41:14):

… through 2017 through 2020, right before COVID. And we’ve got a lot of people that have interesting backgrounds and done a lot of different interesting things. So we’ve got a lot of great people, a lot of people have done a lot of different interesting things, and they’re a fun group to work with.

Randy Wootton (41:29):

Well, that’s what I talk about, software being a people business. Clearly accounting, CPA, and cash firms are a people business as well. And that’s what makes it worthwhile is showing up, working with people you like, and who are interested and interesting.

(41:42):

So well done, Chris. Congratulations on all your success. If people want to learn more and follow you, it’s LinkedIn is the best way to track you down, and then LBMC if they’re looking for additional services.

Chris Morgan (41:52):

Yeah, absolutely.

Randy Wootton (41:53):

Awesome. Thanks for your time.

Chris Morgan (41:54):

Appreciate it. Thank you.