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Tax Integration with Virtual CFO Services

Published by Summit Marketing Team on 19 Feb 2020

The Modern CPA Success Show: Episode 7

Taxes are a natural fit with any kind of CPA services you provide, so we are sitting down with David Danic, the Director of Tax at Summit CPA, and Adam Hale to talk about how to integrate tax services in with Virtual CFO services. Many firms believe that taxes are the way that you get CFO clients, but we do it differently at Summit CPA.

In this episode, we talk about how Summit CPA builds tax services into our Virtual CFO services in a way that supports the services that we already provide for our clients instead of leading with them.

Jamie Nau: Welcome to Episode 7. Today we are joined by a very special guest, David Danic. Dave is the Tax Director here at Summit CPA. So obviously with that said, our topic today is how to integrate tax services in with virtual CFO services. I think this is a really interesting topic. I know when I started at Summit CPA, this is something that surprised me with how we used our tax services. Adam Hale is here as well. I'll let those two kind of go into how that works. But Dave, let's start with you. How did you meet Adam and how did this relationship start? 

Dave Danic: Sure. Thanks for having me, Jamie. I met Adam at a conference probably about eight years ago, and it was a small business accounting conference through the CPA society. And they were talking about going into the CFO services and whatnot, and I thought it was really neat because I was in a very traditional firm at the time. I didn't really see where my career was going. We've talked about me perhaps working at Summit CPA Group. It just didn't work out as initially.

Adam Hale: That’s not how I remember it, Dave. Here's the real story. He and I bonded over the fact that in this room there were a lot of older CPA’s that we're looking to get out. It was about transition planning, and they were talking about how the younger generation, which at that time eight years ago, I don't know that I would qualify. Dave id a few years younger than me. So he was definitely in his 20s at the time, so I probably just broke the 30 threshold. But they were talking about how the next generation really couldn't handle the transition. Like, how are they going to afford, you know, they don't want to work 100 hours a week. They don't want to do this. They don't want to do that. And Dave really stood out to me because not only was he, you know, kind of representing that next generation of firm owners and leaders, but he was making a lot of sense. You know, he was saying, hey, I'm willing to do this and I'm willing to do that. It wasn't just a lot of whining or placating or anything like that. So afterwards, we just told him a little bit about what we did and our vision, you know, in terms of the CFO services and how that all fit. And, you know, just kind of talk through that kind of stuff, and as Dave mentioned, it just, you know, at the time, it didn't work out. We stayed in touch. 

Dave Danic: Networking. So each year we just hit each other up on LinkedIn to see what was going on, and my career evolved because I sucked at audit. I didn't like it. So then eventually I just started really gravitating towards taxes. And they needed someone to run their tax department, and I said, you know what? At this phase of my life, especially with remote work and things of that nature, it's a good time for me to jump in and help them, help Summit CPA.

Jamie Nau: So how long did it take from that first meeting for you to start working with Summit? 

Dave Danic: It was about right years. Yeah, I played hard to get a play. They played hard to get…

Adam Hale: …Yeah a lot of, we don't need him. Taxes? Who does taxes? Why would we want a tax guy? 

Dave Danic: Hey, Adam and I have a very similar sense of humor. We have a very similar M.O. So as Adam said, there was so much gray hairs at the meeting, it was you know, there was a lot of complaining. It was like, okay well, we know we might want to change some things, but it's up to us to do it. So it just it evolved, and I’ve enjoyed Summit CPA.

Adam Hale: Now we've got the gray hairs.

Dave Danic: Yeah, I hope I'm not offending people who are listening out there.

Jamie Nau: We will censor you out.

All: Laughing

Jamie Nau: So Adam, when you approached Dave with this job how did you approach this with him? How did you explain to him how this gig would be? 

Adam Hale: Well, I mean, the evolution was that there were just certain aspects of the firm that Jody and I just weren't super passionate about, and we knew that in order for us to be successful in anything that we've ever done before, it's usually revolves around our ability and wanting to do something. So taxes are a natural fit with any accounting service, and it just makes a lot of sense because it's a lot of planning, it's a lot of projections, you know, and then there's the compliance piece of it, and everybody kind of has to go to you. So our thought was, we need to find a champion, somebody that's passionate about it, really enjoys it, and can run with it. We wanted to give them, you know, pretty much autonomy over the department, and so the first meeting, like whenever we were talking to him, we're like okay, so here's the deal. We want you to be director, but we don't want you to guard the department. We don't want to do more tax returns. 

Dave Danic: I was hungry. I was like, hey I am joining a new firm, I want to impress these people, you know, I think I could bring in some clients after the whole non-compete was up. I was thinking, this is going to work out just fine. They're like, no, we don't want clients. We don't want tax clients. 

Adam Hale: Yeah, so Summit, in the virtual CFO services, then how it works is it's just a support system. So Dave and his team are essential part of our delivery on the VCFO side, but they're supporting the delivery. So again, we meet with our clients and we're doing planning, and forecasting, and all those kind of things. Naturally, tax has to be part of that conversation. So being able to pull the compliance off of our team, the leadership, you know, managing the notices, making sure things are getting done on time and the right way, it’s just been such a huge win for us, and for all the VCFOs. We have some VCFO folks that know nothing about tax. They can bring Dave into the meeting. He adds weight to the conversation. He's another party in the room to say, hey, I've got this part handled, and then whenever there are items to be done post meeting, he takes some and runs with them, which is again a huge relief for the VCFO as well, because they don't want to do that stuff. 

Jamie Nau: So explain to me the idea again, so when I was interviewing at Summit several, several years ago, I was in interviewing with other companies as well, and a lot of companies said, tax was the pathway to get your CFO clients. Why does Summit not think that? And why do we not go out and try to find tax clients and then convert them into to CFO clients? 

Adam Hale: Yeah, I mean, we do taxes for I think, Dave, about eighty five percent of our clients or so? And whenever we get opportunities, we lead first with the consulting piece. So we tell people, yeah, we're a CPA firm, but we're advisors, so we're business advisors first and then accountants. Then of course, if you need the taxes done, that's again part of the delivery of planning, you've got to make sure that you're setting aside money for taxes and doing the right thing, and everybody wants to pay as little as possible. So having somebody that just solely focuses on that kind of thing is a huge advantage. But I would say that when clients come to us again, they're coming to us for the consulting, and then whenever they find out we can do tax about half are like, yeah, I don't really have a good relationship or a great relationship with my tax provider, I think that I'm going to go with you. By the time we get done with onboarding, like six, eight weeks in, the other 50 percent of the people that don't sign up for tax are usually like, doesn't it make more sense for Dave just to be more involved and to do our taxes? 

Dave Danic: We just had that call. 

Adam Hale: Yeah, for sure. We get them all the time. And that other 15 percent, those are people that, you know, their uncle does it or, you know, they've got some other relationship that's established, not for any other reason really. 

Dave Danic: And I don't know if this is going to happen, if it's a five years, ten years, or twenty years down the line, but I always think of my career as a tax professional is sometimes hanging in the balance of the Congress saying, oh, we are going to [inaudible] the fair tax. I don't know if it's ever going to happen. But that was also Jody and Adam started the firm saying, we're sick of hustling through this January - April madness, and then getting all this cash in, and then having no cash in September. You know, so certainly apart of building the firm up was to be more sustainable, and protect itself from an event that could happen where someone says, CPAs don't do taxes anymore. Is that likely? I don't know. But it could happen.

Adam Hale: And I would say even from there. I mean, one thing for a lot of CPA firms to think about too, is sometimes it's just really good money. Lie tax is just really good money. So it's hard to walk away from. I would never tell a CPA firm that I work with just to like remove all their tax work. I would tell them to departmentalize a little bit, and do what we've done. I mean, we still have a handful of legacy clients that we just work on their tax work. What we've been able to do is we out the ones that are lower fee ones, and work with more high net worth folks, and then we've increased the fees. So they're paying a good amount of money, and then I think that over time they slowly become a smaller and smaller part of your practice.

Dave Danic: And Jamie, you started that question by saying, you know, how does a feeder for a CFO work if taxes are high? So we've had a couple instances where we will bill pretty high for some of these tax returns that are new coming in, and a part of that service is me checking in with them quarterly. It's just tax work, and that is three times more than they're meeting with their previous accountant, and this way I can give them some insight into their business. I also just know how balance sheets and income statements work, and can give them some direction from the CFO side. And so, yes, it can feed into that by saying, you know what? If you meet with us monthly, or bi weekly on these cash flow issues, then it does ramp up to the CFO or controllership level of work. 

Adam Hale: And that's primarily for smaller clients, Jamie. So is we get like a small client that just can't afford to pay 40 - 60 thousand dollars a year, but needs, you know, somebody like Dave, or our industry knowledge, then what we'll do is we will put them on that path so they can, you know, get to know us a little bit and work with Dave. And then as they grow, he hands them off to the VCFO side. So that’s the only time that really works. But the idea is really just to kind of grow the rest of the firm and then, you know, slowly shrink those standalone clients. Like we don't accept standalone clients. If somebody called us up and said, hey, can you crank up my taxes, it's got to be somebody’s friend. But we try not to.

Jamie Nau: So let's talk a little bit more, Dave, about your strategy with our CFO clients and with our controller clients. What do you do on a daily, monthly, weekly, yearly basis with those clients? How often do you meet with them? How often do you jump in on calls when you are on those calls? What are the type of things you're talking and asking about?

Dave Danic: I want to meet with our clients quarterly on the CFO side just to give them a high level overview of where we're seeing, where their tax obligation is going to be. Tax work is not earth-shattering, rocket science type of work. I readily admit that. So we should really know what our clients are going to be paying in taxes pretty early in the process. So those quarterly meetings are just a review of how the last quarter's gone. What we anticipate their tax liability being, making sure estimates are paid, and that nature. Then as we get into the latter parts of the year, we can really start, one, with more data to see where they're going to end up, we can start more on the planning side of things. And what I've seen, particularly over the past few years, is that when we have a significant year end projection and planning meeting, I see a lot of the conversations going away from taxes, but more so financial planning, estate planning, things of that nature. So this is one I had last week as an example. This guys is going to owe a boatload in taxes, but we prepared him for this. He is a great CFO client. We've talked about the tax reserve. Well, what more do you want me to say in this meeting? Well, we talked about how he has two kids. Do you have an estate plan? Okay you’ve paid off your debt, you’ve paid off your house. What are you going to do with these private distributions going forward? So it really allowed an avenue for us to just provide more value add. And then also hopefully, for our firm to go more towards some financial planning services as well. So it's really a great opportunity to help grow. 

Jamie Nau: So more tax consulting at that point? So instead of just talking about this is what you're going to pay this year, it’s more like, okay how can we pay less? What else kind of questions can I answer? 

Dave Danic: Yeah. Those are natural questions that we're doing throughout year. Saying, okay, yes, you're going to owe X, how do I get you down by this? And the tax code is written that there's not many options away from what we do. So we'll cover the research credits, think about maximizing retirement plans, and how we can do that through the tax code. So that's a natural part of the process. But after that, you have to start thinking, how else can I provide value to my client. Personal taxes is your one avenue that gets you out of the company. Most of them are flow through clients, and so now I'm not talking about the company. Now I'm talking about individual X outside of the company and his family and things of that nature.

Adam Hale: I think, Dave, I mean, you know, to his credit, to all these clients, you usually have some weird, nuanced things that comes up anyway. You know, like, hey, I heard I can do this, or I'm going to trade for services for this or that. And so there's always like these one off tax questions that pop up. Just again, having somebody dedicated outside of the main relationship just to be able to come in and own that is huge. Not only for the client, but for our delivery team as well. You know, that's a huge relief for the team. 

Jamie Nau: I can definitely agrees to that, and I hope I don't have any former tax employees that I've worked with listening to this, but I think this is where Dave sets himself apart. I've brought him into several client meetings and actually enjoyed listening to him talk, where previous tax directors I've worked with I'm honestly falling asleep and thinking what the heck is this guy talking about? And so I think that's really where Dave sets himself apart. A lot of times I'll just bring him into a meeting, just to like change the tone a little bit. Say, okay, let's talk about the research credit, and let Dave do his thing because he really wows every client we talk about We've talked about in previous podcasts about how we do the review system. We get reviews every month and every time we get a green I'm pretty sure Dave's name is mentioned because he does such a good job with that.

Jamie Nau: So throwing it back to you Adam, how important was, when you hired Dave, his personality? His ability to explain things to clients?

Adam Hale: Oh it was huge. I mean, for us, all of our hires are really centered around, and we've talked about this before, it's just the ability to relate to clients and stay relevant. And, you know, it's hard to get in front of clients and talk, and then especially to be able to do it virtually adds just another layer to that. So being able to communicate well, and also with the communication, just make sure it's timely, like follow up has to be solid. And of course, everybody thinks they're good with that stuff. So that's kind of a TBD one. But he does great with, you know, tracking everything. We use a tool called Trello. He's got several boards where he hawks everything and stays on top of everything, and really tries to anticipate things before the client asks. I challenged him a couple of years back I was like, hey, what I don't want is to have a client paying me two weeks from now and asking me, hey, where's the SAT? What I'd like to see you do is be able to beat them to the punch every time. So you started putting due dates together and really being proactive with that, and I think he’s done a fantastic job with that and the clients really appreciate it. 

Dave Danic: This podcast is a great ego boost. Thanks, guys. Appreciate it. 

All: Laughing [in audible] 

Dave Danic: When you offer CFO services, you are held to a higher standard, versus what you used to be able to do. When you’re at a traditional firm where perhaps, you know, in tax season, you could just say, okay I'm not going to ask client X for their QuickBooks file because I got enough going on my plate, and I know they can usually extend and I can just push them off for a couple months. But now we are in their stuff daily. Weekly. There's really no excuse why we can't have all their tax work done and clearly communicated in February. So, I mean, Adam, he said that much nicer than what he has told me before. He would say, Dave, I do not want people surprised—the work is going to be done by March 15th! But it's a very reasonable expectation for our firm because you don't have to ask many questions. You know, we have all the data, so we should be able to whip up their tax returns fairly quickly.

Jamie Nau: 9 out of 10 times when I've talked to tax people about what we do, they say, oh, that must be a dream. Tax returns must be so easy if you're in their books every month, you're in their books every week. It's easy to know what's going on. There are no surprises. Every tax person I've talked to is like, that must be the easiest tax return in the world.

Dave Danic: They are. I mean, I don't want downplay my job, but you know, when the books are pretty clean you can really publish returns pretty quick.

Adam Hale: You don't have to herd the cats, that’s the big thing. You know, you have all the information, that's huge.

Jamie Nau: So let's talk about the future so have talked about what we're currently doing. Dave, where do you see the future of your role going with Summit? What kind of services do you think you're going to provide over the next three, five, ten years?

Dave Danic: Well we hired a Tax Manager underneath me, which was a very nice hire this year. By hiring her it allows me to get out of the weeds of preliminary review and things of that nature. So now I can look at more higher value issues with our clients, but with taxes, there's only so much you can talk about. So I did get certified for financial planning this year. So as our clients mature and if there’s exit events, we want to be positioned to be able to continue that relationship after that. Then those year-end meetings I was talking about, with estate planning, there is also insurance. So we also want to get license for some insurance planning as well. Just because when we're talking with clients so frequently, we have the opportunity to offer advice to them in all these different realms.

Adam Hale: That's going to be a big part of that, I think, going forward. I mean, don't get me wrong, if you're a CPA firm out there, and you are super tax centric right now, it's definitely a good feeder. So we don't lead with that anymore, Jamie, to your earlier comment. But right now, you could kind of work through your list and figure out which clients are going to be ideal for VCFO services. They're typically going to be north of, you know, you don’t want to be the biggest ticket item on their on their plate. So they're normally going to be north of 2 million dollars in revenue if they're service based business. North of 5 millions dollars if they're going to be manufacturing, that kind of a thing. But, you know, once you talk to those clients and just start introducing them to the VCFO services: hey, would you like help with forecasting and planning? and kind of see ahead, they're naturally going to say yes. Then you backfill into, now I can enhance that tax compliance work, you know, instead of just doing the production, I'll be more involved, I'll make sure these things are getting paid timely instead of getting that surprise at the end of the year and going, oh, you didn't make any quarterly's? Awesome. All this money, like all that stuff's kind of off the plate. So the tax can still be a really good feeder for a lot of CPA firms. Then like I said, then you can kind of whittle down those relationships and focus on the more core ones. Then long term, as David mentioned, being the personal VCFO is kind of where we see this evolving too, and there's lots of CPA firms that do really well at this, and they bring in financial advisors. I don't think that's the direction that we're planning on taking our firm. Summit’s is going to be more tax planning centric, and more exit strategy centric. So we are going to be more focused on making sure those big holes are filled, and we're doing those more advanced things. Which means Dave, or I, or anybody on our teams never going to be “that” person. You know, whenever you're getting into those hiring strategies, you really have to develop relationships, and we have relationships with several people that are specialists in different areas. So Dave's job is like a personal CFO is exactly like what it would be for our business CFO, which is quarterbacking the relationship. He doesn't have to be the person that's maintenance and filing the tax return for a captive. That's not our role. His role is understanding captive's when they make sense, you know, if it's a viable solution. Same thing with an exit strategy on a sale. Like when does it make sense to do a monetized installment sale? When doesn't it? What are the costs benefits? And then who is somebody that can take us from A – Z, cradle the grave if you will, with the entire plan, and does that stuff every day. That's really where we see the evolution of Dave's role. Turning from compliance to strategic, especially with the addition of the tax manager.

Jamie Nau: It sounds like that's really closely tied to the CFO services as well. Like a lot of that information will come from meetings that Dave's not sitting in, that the CFOs can throw over to him and say, hey, this client is looking for an exit strategy, we are going to need you to jump in and talk about that when you talk about the tax planners. So it sounds like there's a really close relationship between those two services. 

Adam Hale: Yeah, it's all about getting sticky, and by having both of those relationships, and being able to handle kind of a soup to nuts relationship. You know, again, you don't have to do the taxes, but if you're involved in that process and you're doing that, you've just created more stickiness with the client and it opens up the opportunity for those better planning things. So that's definitely the direction that I would like to see us go. Dave's taken some, you know, some pretty big steps forward in trying to map that out for us. 

Jamie Nau: That sounds really exciting. I can think of a couple clients right now that I know would really benefit from that. So that that's great that we're going in that direction. So real quick I'm going to plug our email address here. So if anyone has any topics they want us to talk about in the future, or if they want to be a guest on the show, we do have an email address related to this podcast. That email is: cpa@summitcpa.net. So feel free to e-mail us any topics or questions you have for us. But I want to throw that out there. 

Jamie Nau: Any final thoughts? We're kind of getting close on time here. Anything we didn't talk about, Dave or Adam, that you guys want to talk about? Or any other final thoughts related to tax that we can touch on real quick?

Dave Danic: I think in closing, you know, from the tax world, being a virtual CFO allows us to take a seemingly complex issue like taxes, and get it in front of the client frequently so it's not such a daunting task for them. So if we can give them that peace of mind that they are taking care of for taxes throughout the year, it's not that big of an issue. So if we can make that one crazy part of their life one less thing to worry about, which is what I think we do a good job at, it's just another great value that we can provide our clients.

Adam Hale: I would just add that that reciprocates to us. So it makes it easier for them, but in return, it makes it easier for us. Again, not having to heard the cats, and be able to crank out returns that are super clean, which makes it really nice. 

Jamie Nau: Great. Well, I appreciate you coming on today, Dave. I will definitely try to find more topics for you. I think you're a really good resource for us. I'll make sure we get you on this podcast in the future, because I do think you can definitely help bring good topics to the podcast. I appreciate you coming on. Adam, as always, great job. I appreciate you both being here.




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