Spencer Sheinin might be an accountant, but he doesn’t just talk in numbers. He talks in stories and in his new book, Entreprenumbers, Spencer teaches entrepreneurs how to think about their businesses accounting and numbers in a new, simpler, and more resonate way. As an entrepreneur himself, Spencer believes in the power of entrepreneurs to change the world. This book is a powerful tool to help their businesses be more successful.
Nikki Van Noy: Spencer, thank you for joining us today.
Spencer Sheinin: Thanks so much. I appreciate you having me.
Nikki Van Noy: We’re here today talking about your new book, Entreprenumbers, and I’d like to start by having you explain to me how you serve as a translator between accountants and entrepreneurs. I think that’s such an interesting way of putting what you do.
Spencer Sheinin: Yeah, thank you. Well, I’m both an entrepreneur and a CPA. I’ve been a CPA for almost 20 years and most of that time, I’ve also been an entrepreneur. I had operating businesses in manufacturing, in construction, and in cold storage over about a 15-year period. Not only do I have the financial background and understand accounting and financial statements and all the accounting stuff, but I also think more like an entrepreneur.
I find that to be a pretty natural bridge between the two.
Nikki Van Noy: What I really enjoyed as I was bringing myself up to speed on your book is that you are talking about numbers and business but it seems to me like you’re doing it in such a human way where you’re addressing the fact that many entrepreneurs have fears about working with numbers.
I would love you to just talk to me about the human element of it and what you’ve seen there.
Spencer Sheinin: You know, I think a lot of entrepreneurs–imagine you start a business, whether you start it, or maybe you inherit it, or maybe you end up owning a business by accident. Most people do that out of love, a passion, or a necessity but it’s not because they came up with any business or accounting training.
They end up with this business and it just keeps getting bigger and bigger, if all goes well. They have been ignoring this accounting because really, accounting is its own language. You know, I went to school for three years to learn how to write, create, and interpret financial statements.
Most entrepreneurs didn’t. It’s this kind of black box of confusing information. By making it actually accessible, the way an entrepreneur thinks, and it’s how I thought, it’s how I wanted my numbers presented, even though I was an accountant.
To actually humanize it, turn it into pictures, turn it into the data visualization–a picture’s worth a thousand words–where you can look at something and instantly know what’s going on without having to have an accounting degree to dig into the numbers. The books are dying to tell you a story. Let’s turn it into a story that actually resonates with the entrepreneur and they really know what’s going on in their books instead of it just being this source of blah, grossness that they avoid.
Nikki Van Noy: I love that. Talk to me about how we can turn numbers into stories, what does that look like in practice?
Spencer Sheinin: I break it down into the hygiene of accounting, just the stuff that everybody thinks of as accounting and the transactions, the reports, all the stuff you just have to get right in the business. How we turn it into stories and bring it alive is what I call the financial insights of the statement.
The way I like to turn it into a story is by identifying the top three issues facing the business through a financial lens and rank ordering it by the impact on cash or impact on profit and putting out on a really simple one-page chart. Because there are so many things pulling at the entrepreneur all the time, and because it’s so confusing and there are so many things happening to just know that your three biggest issues are number one, your labor is too high and it’s costing you $82,000 a year, number two, you have too many small jobs and that’s costing you $50,000 a year.
The entrepreneur can look at a chart that has three negative numbers on it, see which one is the most negative and again, just instantly and intuitively understand what’s going on. There’s a story behind each one of those and that’s where I think it’s the accountant’s job to deliver that information to the entrepreneur and it’s the entrepreneur’s job to solve it.
So much for entrepreneurs, especially emerging entrepreneurs, especially those who can’t afford a bookkeeper and a controller and a CFO, they are just going it alone with a bookkeeper. They’re not getting that story. They’re not getting the element of the biggest issues facing the business through a financial lens.
Nikki Van Noy: What I really love that you’re doing there is it sounds to me like you’re taking these meaningless or overwhelming numbers and framing them in such a way that entrepreneurs can look at them through their entrepreneurial lens. What they’re strength is presumably, which is looking at things in a new way, finding solutions to problems, rather than just looking at a listing of numbers.
Spencer Sheinin: Well, it really calls out the biggest issues. I do a fair amount of speaking on this topic as well and you know, I always ask the question if, let’s just say your office expenses are high by $2,500 over budget, but your labor’s off by $80,000. It’s not that I don’t care about the office expenses being over $2,500, but that’s an easy one and entrepreneurs see that, and they panic that we have too many pencils in the stationery room and it takes them off track.
By looking at those top three–there’s a lot of work that has to go into figuring out those top three. We’re talking about looking at budget variants analysis. We’re talking about looking at trend analysis. Looking at ratio analysis and benchmark data against other people in the industry, so there’s a lot that goes into creating that simple story.
That’s a lot to ask of the accounting team, but it’s the difference-maker from the accountants getting a reporting package and it is a pain for them, to being something that they invite so that they can actually take action on their business and move the needle the best way they can.
Nikki Van Noy: Talk to me a little bit more about identifying those top three issues. This is something, if I’m understanding correctly, that will fall to the accounting team or bookkeeper, is that correct?
Spencer Sheinin: Yeah, pretty much everything I talk about is actually the responsibility of the accounting team or the bookkeeper. What I’m offering in this book is to empower the entrepreneur to learn how to confidently direct their accounting team. Because right now, the accountant’s probably sitting off in a corner somewhere maybe quietly–probably quietly, most accountants are quiet.
I make fun of accountants in the book and I should apologize but I am an accountant so I’m just making fun of myself too, so it’s okay.
Nikki Van Noy: You’re allowed to.
Empowering the Entrepreneur
Spencer Sheinin: Yeah, thank you. You know, the accountant’s off in the corner, kind of doing their own thing and the entrepreneur may not have the confidence to say this is what I need. This book is really empowering the entrepreneur to direct their team to get them what they need.
When it comes to figuring out this top three, it is a very technical, numbers heavy approach like I said, a few of the things would be a budget variant analysis, trend analysis over the last couple of years, looking at profitability, things like slicing and dicing the data in a way that, maybe you slice it by segments. For example, in construction, new homes versus rentals, versus tenant improvement. Where were you actually making money in your business and which of those segments, if you grew them, would have the biggest impact on the business?
Things like that, looking at the customer list. I looked at one example that I liked to use a lot, and this is legitimate data. One of our clients had in the prior year done 97 different jobs and 60% of those jobs, nearly 60% of those jobs provided 8% of their revenue. Imagine, 60% of your work gives you 8% of your value.
That type of analysis completely changed what type of clients they went after and transformed their business. Those are the types of insights where an entrepreneur’s eyes light up when they get it in a clear, easy to understand way–not in a typical accounting way which is buried in a spreadsheet.
Nikki Van Noy: Yeah.
Spencer Sheinin: Hopefully, there wasn’t too much in that answer there because I went off a bit.
Nikki Van Noy: No, not at all. It actually made me think that’s what the pause was because I was sort of turning this back on my own life and thinking, how intimidating it can be in instances when I don’t have a firm understanding of something to direct the person who is a specialist in that thing. I love that you’re giving entrepreneurs who aren’t necessarily interested in the intricacies of accounting or well versed in it, tools so that they can direct their accountants.
Spencer Sheinin: And to know if their accountants are actually on track for them or not. Because that’s another kind of black box. “I don’t know, is my bookkeeper doing a good job? I have no idea.” There are some tests in the book–really basic questions that can be asked. “Can you show me this?”
“What do you mean you don’t have it?” Just offering some subtle ways of determining if the team is on track. There’s a couple of checklists that allow you to take that to the team and say, “Bring me back this checklist, and let me know where we’re at.”
None of this is up to the entrepreneur to do. This is all for the entrepreneur to drive their team.
Nikki Van Noy: Excellent. Let’s give listeners some examples of that, what are some common things that business owners should be in the loop with in terms of their numbers, but that accountants may be overlooking?
Spencer Sheinin: Are you talking about just getting the quality of the accounting to a point where the hygiene can be done? Is that a couple of examples in there?
A Few Questions to Ask
Nikki Van Noy: You were talking about how you may not even know if your accountant is giving you the information that you need. That’s kind of what I’m looking for here, are there things we need that we might not be aware of and should be testing for?
Spencer Sheinin: There’s a couple of really simple ones and these are kind of like accounting 101. If you’re an entrepreneur, you just go to your bookkeeper and say, “Can you show me the latest bank reconciliation?” Today, we’re recording this, it’s January 27th, the December bank reconciliation should be absolutely complete. If it’s not, that’s a bit of a red flag, and even if you don’t know what a bank reconciliation means or looks like.
You’re going to know if they’re like, here it is, it’s done versus they start making excuses, “I’ve got the October one done.” That was three months ago, four months ago. That’s one of them.
Another one that I really like is asking, “Can you show me our accruals for the last few months?” I don’t use a lot of accounting terms but this one I think is a good one to ask the bookkeeper.
An accrual basically means, there’s a difference in accounting perspective between when something hits the bank versus, say you’re collecting a deposit from a customer. When you put that deposit in the bank, you haven’t actually earned it yet, you should actually be accruing that deposit, you only earn it when you do the work. Pretend you’re a marketing agency and you’ve got a $100,000 project and you’re lucky enough that you can charge a 50% deposit, so you have 50 grand in your bank.
But you don’t start working on it until February. Well, you haven’t actually earned that money in January. Your bookkeeper accounting team should be recording these accruals and they should have a list of them that matches when the work is done versus when the money is received and the same thing for payments out.
If let’s say, you pay your insurance once a year and it’s 20 grand, well, say, 24 grand to make the math easy, you should be experiencing $2,000 a month in expense because even though you may have paid it in a single check, really, you’re incurring the expense over time because you paid for a year’s worth of insurance.
Those are a couple of examples of accruals so when you go to your bookkeeper and say, can you show me the accruals if they look up sheepishly and haven’t done any accruals, that’s a bit of a red flag that they may not be on top of things at the level you need.
If they hand you one, even if you don’t know what accruals there should be, the fact they’re doing any is at least a sign that they’re doing some of the basics right. Just a couple of little indicators there.
Nikki Van Noy: Perfect. Let’s talk a little bit about what is at stake here. Why is this such an important topic that you invested your time and resources working on this book?
Spencer Sheinin: Yeah, great question. I believe entrepreneurs can change the world. I see my role is to help them through their financial blind spots. Not every entrepreneur is going to change the world for the better–there’s some that don’t have the best of intentions, but all in all, I think entrepreneurs can solve a lot of the world’s biggest problems. I am hoping they don’t get stuck in a financial blind spot. Even if changing the world means employing five, 10, 20 or 30 people all of a sudden if you are employing 30 people and creating a good environment. Those 30 people have family.
Let’s say it is a four-person family on average, you are impacting the lives of 120 people by being an entrepreneur and providing those jobs. So, I think entrepreneurs can change the world and I get really excited and inspired by that.
And if I may, just one more second, the other thing that I think is at stake is I believe entrepreneurs are driven to increase profit for one of two reasons. Either A, for personal lifestyle reasons, they want a bigger house, a bigger car or they want their kids to grow up better than they did. They want more free time, whatever that side is that is the personal reason.
The second reason is the impact reason. A lot of entrepreneurs I know really do want to have that impact and by increasing the profit, it actually allows them to have a bigger impact because there is more available to invest and reinvest into whatever project they’re working on. That to me is what’s at stake.
Nikki Van Noy: You are so clearly, Spencer, the person to write this book because in that answer you just took numbers and turned them into a story. You gave me a lot of insight into how your mind works–that was perfect.
Spencer Sheinin: Thank you. Hopefully, it didn’t scare you.
A Different Perspective
Nikki Van Noy: No. So, you’ve been doing this for a long time, and I am guessing that you were able to identify some patterns and red flags. Obviously, I think that whether an entrepreneur is compelled to work closely with numbers, whether they like looking at them or not, they want their business to succeed and they are taking some steps toward that, I would imagine. Are there any common practices you see where entrepreneurs think that they are doing something helpful for their accounting, but it actually works against them in some way?
Spencer Sheinin: Yeah, interesting question. So, two things pop to mind on that. Number one is I think just recognizing the difference between how entrepreneurs and accountants think. Now I am going to generalize and I will apologize in advance what I am going to say accountants generally, what people would say about accountants is they’re boring, they’re in the box, they are rule-following, they are risk-averse, etcetera, etcetera.
Entrepreneurs are the creative, out of the box, rule-breaking kind of mindset people. So, one thing that happens is when an issue is identified in the business, entrepreneurs and accountants look at that issue with such a different lens. Like we have a cash flow crunch coming up, the entrepreneur is like, “We’ll figure something out,” and the accountants are like, “What are we going to do?” and the entrepreneurs are like, “Well, let’s go try this initiative over here.”
Accountants are, “Well, we don’t even have enough money for what we are doing now. How are we going to start another initiative?” and so there are a few banging heads. Because entrepreneurs tend to have a very dominant personality, it’s pretty easy to shut down an accountant who’s maybe trying to get you some good information. So, number one is just understanding the difference of the mindset and trying to gather what the root is that the accountant is trying to get to.
“What are they telling me, and should I dismiss it, or do I need to actually listen to them?” Because accountants actually bring some value. I know most entrepreneurs think they’re a pain in the butt, but they bring lots of value.
Then the other thing and I don’t know if this is a block or something, but the successful ones that I see, there is often a person who is the bridge between accounting and the entrepreneur. There are always questions, there are always a lot of things that the accountant needs to follow up on. If they are going directly to the entrepreneur, especially if you are a small business and the entrepreneur is handling everything, the thing that will always fall to the bottom of the list is responding to the accountant about what was this invoice for, or how much do I invoice this client for, or I’ve got this receipt.
Very few entrepreneurs are disciplined enough to do the process that the accountant needs but a good business needs that rigor. So, having somebody in place to be the buffer between the crazy entrepreneur and the stuffy accountant I think is a big win and, in our business, we outsource a lot of accounting. We outsource accounting departments for emerging businesses. That is one of our qualifying questions, if there isn’t some sort of office administrator or general manager or somebody who can be our lead point of contact other than the entrepreneur, we tend not to take the business because the entrepreneur is usually too scattered.
Nikki Van Noy: That reminds me of how we started this interview talking about you being a translator between accountants and entrepreneurs. It sounds like having that same sort of translator within the company if possible is important.
Spencer Sheinin: I wouldn’t call that so much as the translator as much as the doer. I mean in EOS terms a lot of entrepreneurs might know the entrepreneurial operating system. It is the role of the integrator and is a different book, but they talk about the difference between a visionary and an integrator. Usually, there are the entrepreneurs, the visionary, and there is some sort of right-hand person who is the integrator and who integrates all of the other departments together.
You could consider that like a VP of ops or president or something like that. So, it is really that person and it’s not so much that they are translating the numbers. It’s just making sure the process procedure is being followed because if the business doesn’t have discipline, which usually the entrepreneur doesn’t, the business needs the discipline in order to actually get the basics right. You need the basics right to inform the insights because without the basics the insight is garbage in, garbage out.
Nikki Van Noy: Got it, okay. Now without asking you to violate any sort of confidentiality or anything like that, I am curious if in all of your years of doing this, working with companies, working as a speaker, is there any story that really stands out in your mind in a way that the principles that you’re talking about in this book have really made a positive very noteworthy impact on a company and perhaps made the difference between succeeding and not?
Spencer Sheinin: Yeah, a couple of examples come to mind. We tend to deal with businesses up to 10 million in revenue. Once they get bigger than that I often recommend that they have a team in-house, depending on the complexity of the business. But one thing I see a lot with prospects, in particular, is their financial statement, their income statement, their profit and law statement can be like 200, 300, 500 lines long.
We are dealing with one client whose income statement is 32 pages long. Now, these are all relatively small businesses. GE might need an income statement like that because they are so big and have so many divisions, but for a small business that is doing two, three, four million in revenue, you know an income statement that’s 50, 60, 70 lines long should be absolutely enough to get the data they need.
So, a couple of the real wins have been just restructuring how the financials are presented. Because again, that is what informs the insight and when you have an income statement that’s 300 lines long, for a small business it is so granular and so messy that it is really hard to pull the stories out.
So, one example again, without getting into the specifics, we took somebody who had this really, really long income statement, we restructured it and by doing that and by setting up–this is a really boring part of accounting getting the chart of accounts right and mapping to different classes and that type of thing, that dorky accounting stuff–we were really able to drive out where their profit drivers were in the business. So, one client literally let go of a whole lot of business that wasn’t making money and it created space for a whole bunch of new business that was profitable. I mean they went from struggling, to break even, to being a very, very nicely profitable business.
Just because they change who they were going after in sales because the story and because they got their basics sorted. So, they can get better stories, it was literally a swing of almost $1 million in profitability.
Nikki Van Noy: That’s amazing.
Spencer Sheinin: Yeah that was a real win, we are really happy about that one.
The Gold Standard Reporting Package
Nikki Van Noy: Let me throw one thing out there. You mentioned that there is a website with some accompanying materials. Is there anything there that you want to talk about that might make this more interactive for readers or anything like that?
Spencer Sheinin: Sure, on the Entreprenumbers.com website, one of the key downloads that I think is one of the big value takeaways from reading the book and it is also what I give away on my talks is a sample of what we call the gold standard reporting package. What that does is it’s designed very specifically to address both the hygiene that’s the regular accounting stuff and the insights, which is the stuff that is usable for the entrepreneur.
It starts off with a lot of that data visualization, those charts, those stories in picture form for the entrepreneur. Then it gets into the more technical accounting stuff and I’ve mentioned that entrepreneurs and accountants often approach the same problems through such a different lens. Those are actually specifically put together in that package where it speaks to both of them. So, if something doesn’t look right in the picture, the actual hard data is there as well.
The entrepreneur and accountant can actually talk through it together. So, there is that sample package there as a download, which is something that a lot of people have told me they get a lot of value out of having that reporting package.
Nikki Van Noy: That’s cool, I love that you have the information presented in both ways.
Spencer Sheinin: I wanted to put it in the book, but it is actually a fairly detailed package and it just didn’t really fit in a paperback size book. So, I figured it wasn’t even legible and I should say there are some examples in the book where I know they aren’t legible. I just wanted people to get the mental picture on their mind of what the page looks like and then it just refers to the website for a free download. It obviously doesn’t cost anything to download it.
Nikki Van Noy: Okay, anything else?
Spencer Sheinin: Let me just share a real quick story. One of the challenges I think entrepreneurs also have is they don’t intuitively understand what an accounting department looks like.
The best way I describe it if you picture building a house, let’s say you are building your dream home and your contact is probably somebody who’s got a title like a general contractor or a builder or something like that, and on-site they have a bunch of skilled trades. Be it electricians, plumbers, carpenters, etcetera who are doing the technical work on the job site.
Then there are going to be often, depending on the size of the job, maybe a couple of guys hauling lumber or carrying concrete, sweeping up, and they’re called the laborers. So, we all know that intuitively and we don’t have to explain it but what’s often missing from the entrepreneurs is a very similar stack exists in an accounting department.
So, at the bottom kind of the laborer equivalent is a bookkeeper. They are a really critical part of the job of course and they handle all of the transactional functions. So that’s like your payables and receivables and payroll, etcetera, etcetera and in the middle is the reporting and compliance function. That is the equivalent of the sub-trades, those are going to be your controller, senior accountants, and they obviously handle the reporting, but they also handle the compliance.
That is your operating procedures, your SOP’s if you will, picking the right software, setting up the chart of accounts, that boring stuff I’ve already mentioned. Then on the very top of the stack is usually somebody called a CFO or a VP of finance, or director of finance and they are the strategic function. So, they handle things like what happens if we change our pricing structure? What happens if we open another store? Do we have enough money in five years to continue running the way we are?
They are usually sitting at the senior management table, helping look at the business strategically through that financial lens. The “aha moment” for entrepreneurs, especially again those who are doing one, two, three, four, five million in revenue, if you are running your entire business with just a bookkeeper, it’s kind of like building your dream home with just a laborer. They’re a critical part of it missing and I am not belittling laborers or bookkeepers in any way.
They are only a part of it and they don’t necessarily have the skills of the reporting and compliance or the strategic function. So, when entrepreneurs get stuck and don’t know how to move or aren’t getting the right information or it’s coming wrong, it’s often because they’re assuming the bookkeeper can build their entire house. They’re going to the wrong place for the wrong thing.
Nikki Van Noy: Beautiful. I can tell you’re a speaker, you have such a great way of explaining things. I wish everyone could break things down like this, thank you.
Spencer Sheinin: Thank you, that’s the translator in me. I try and make it easy to understand.
Nikki Van Noy: All right, Spencer let’s talk about where listeners can find you. So, the book is Entreprenumbers: The Surprisingly Simple Path to Financial Clarity, which is available on Amazon. Where else can they find you?
Spencer Sheinin: Right, so Entreprenumbers.com has not only some additional downloads and supporting information for the book, but all my contact information is there. Then my core business is shiftfinancial.co, not dot com, dot co and there’s additional resources and contact information there, as well as where I can be found for speaking engagements. I’ve spoken all around North America. I have actually spoken in a few different countries around the world as well.
So, I am happy to do that, and we, of course, have a blog that is fairly active and you know if you Google me, there is a number of podcasts out there that I have done that you can find by googling Spencer Sheinin. Those will bring you to the top of the list of a number of podcasts for different industry groups that I’ve done a similar podcast for.
Nikki Van Noy: Excellent, thank you for joining us today, Spencer.
Spencer Sheinin: Yeah, my pleasure. Thanks so much, I really enjoyed it.