Today’s interview features Dustin Snyder who is the director of finance at Banyan. Banyan is experiencing massive growth and Dustin has some amazing insights and war stories for taking a startup from around 30 employees to well over 100 in just a couple years.

A few highlights from the interview:

    • The Client Cube: One simple set of data in excel that will allow you to measure MRR rollups, churn, LTV, and be your single source of truth for all BI, data investigation, and projections.
    • Internal vs. 3rd Party Accounting.
    • A genius take on cash budgets and managing what department gets what.
    • The transition from cash accounting to accrual.
    • When to hire a controller.
    • Reviews and Audits.
VideoAudio

 

Download the Client Cube excel file that Dustin created here. The Client Cube is simple to maintain and yet is the most powerful source of truth, BI, and data investigation

 

Transcript

Jeron Paul: We’re excited to have Dustin here with Banyan. I think you have a lot of talking points that you have forwarded on to us. We are really excited to get into as many as we can and get much value from that. If we can start off with a quick intro on Banyan and a little bit about yourself, that would be awesome.

Dustin Snyder: Certainly. My name is Dustin Snyder—I’m the Director of Finance here at Banyan. I was the first accounting and finance hire. I came on when there was probably about 30 employees at the company. I’ve seen it grow from 30 all the way up to a hundred plus. I’ve experienced a lot of headaches during that two years and have learned a lot of great things, and hopefully we can share some of that with the viewers so they don’t have to go through the same headaches that I experienced.

Banyan itself is a marketing company. The way I’d like to explain it is—I’m originally from Portland, Oregon and moved to Utah about three years ago. When you do that, you’ve got a totally fine, new healthcare provider, there are new dentists, new doctors—the works. What do most people do in that given situation?

Jeron Paul: Probably Google it, talk to their friends or ask around, or something like that?

Mike Wille: Yeah, you definitely look at the reviews.

Dustin Snyder: Yup. That’s exactly what I did—I jumped on Google and said, for example, “Dentist near me.” You see the ones that come to the top of the list and then you start looking at the reviews, and who has quality. You jump into their website and you want to get a feel for their culture, see who the doctor is, what he looks like. So those are two areas that we can help healthcare professionals with. I said ‘dentist’ because we started off in that industry.

Mike Wille: Cool.

Dustin Snyder: But now we’ve branched out to all healthcare. We are Banyan, and our trademark is to branch out. That is what we’re doing as a company. We offer review software that help healthcare professionals to capture the pent up goodwill, so to speak. Every good doctor has patients that love them. A lot of times, the reviews are sitting there, waiting to be solicited and captured online. Our software enables doctors to solicit those reviews and covert them, and get them on Google, on Facebook where people can see them.

We also help out with the websites. Your first impression of a healthcare provider is generally their website, and if their website sucks, you’re probably going to move on to the next guy.

And then we have a social software. Because of HIPAA, you’ve got to be careful on what you share on Twitter, Facebook, Instagram—with the public you can get into a lot of trouble. We’ve created a platform that enables doctors, healthcare professionals to share pictures of their patients online in a compliant way.

Jeron Paul: Cool.

Dustin Snyder: Last but not the least, we have some listing software. There’s over 70+ listings providers out there where you can find information about businesses, and our software cleans that up to make sure that it’s consistent across those directories, which I believe helps us. That’s my understanding. That’s the gist of what Banyan does.

Mike Wille: Perfect. You sound like a little marketing department, my friend. Ha ha

Dustin Snyder: I have been to a convention. I have actually closed a deal at a convention, which will forever go down in history. Finance guys are people too. We can get in there, we can close deals if we need to.

Jeron Paul: Like a true startup.

Mike Wille: And I guarantee you, the accounting on that deal was perfect. Ha ha ha

Jeron Paul: Ha ha. Thanks for that intro, that’s awesome.

Mike Wille: Great intro.

Jeron Paul: It gives people a good sense of where you are at as a company, which I think gives a lot of context. There are so many people going through that stage that you’ve just described—who are going from 3-employee range up to the hundred plus. There’s so much that goes on, so I think it’s going to be awesome to hear a little bit about what you saw, what you’ve dealt with, how you took on that transition process.

Dustin Snyder: It comes at you pretty fast. We’ve experienced (and we are experiencing) hyper growth. I have never experienced that before. I came to work at Banyan and it was a slap in the face, for sure. There are definitely things that if I could go back I would do differently. We will touch on a few of those things. I’ll give a little bit of a taste of my background before we get into that.

I started out as a senior analyst at a company called Moss Adams. It’s one of the big 15 accounting firms—great company. Maybe there are going to be some listeners that want to become a Director of Finance or something someday, my path was interesting. I started at Moss Adams. I was on the consulting side, and I specialized in business valuation. I got to see lots of different companies, software, manufacturing, forestry all over the board. See how they worked, dig into the numbers, learn some great financial analysis tools, how to model, how to DCF, how to do market valuations.

I was there for about four years. All of those tools combined really helped to lay a solid foundation for getting into corporate finance. I know and I talk to a lot of people that do the VC route, which is also a great route. You get those same tools like that. I had ‘the bug’ when I was at Moss Adams to be an operator, to see what it’s like being inside the company because I was always on the outside looking in. Before I went long-haul there, I wanted to see what it’s like. I had an opportunity to come and work in Utah for a company called White Cap Institute. It’s a holding company that had four operating companies: One was a dental lab, one was a dental practice, one was continuing education, and an ecommerce.

Jeron Paul: Wow.

Dustin Snyder: So I was looking over all of those from a financial and operating perspective, and I really learned a lot. I was only there for a year because this opportunity came and I wanted to get into software, but I learned a ton when I was there. Plus it exposed me to our primary target market, which is general dentistry. So it gave me a pretty good background.

The CEO of Banyan, Tom Clark (who we grew up together with, who’s a good friend), reached out to me. He needed a finance guy—that’s what my position was. I was a finance guy. Little did I know that was everything: Finance, accounting, HR, in-house legal…

Jeron Paul: Investor relations

Dustin Snyder: Investor relations, yeah. You wear a ton of hats.

Jeron Paul: Obviously some operational stuff?

Dustin Snyder: Yes, systems implementations—we’re moving on to our third billing software. I’ve been involved in a lot of that kind of stuff. It’s a lot of work. But one of the things I wanted to share with the viewers was—if you’re going to work in a startup, you’re going to wear multiple hats especially if you’re in the finance and accounting, if you’re the first finance guy in the organization. And if you are above doing AP&R and chargebacks, it’s not for you. Just disengage.

Jeron Paul: Ha ha. For the record

Dustin Snyder: Because you are going to do a lot of things that are definitely above your skillset, but at the same time very important to the business. So if that’s not your cup of tea, go work for a big company where there are other people doing that stuff. It’s not going to be a startup if you could see everything, and you need to be a part of putting in processes for all of these things. It’s really the wild west. You’ve got to tame it, so to speak.

Mike Wille: Yeah, that’s awesome, I can relate with that. Implementing a process, I think, is sometimes one of the most grueling but also most rewarding things that you can do. It just makes startups so fun.

Jeron Paul: Yeah, for sure. I think that’s great for our listeners honestly to hear that story, I appreciate it. So should we transition now—for our listeners, Dustin actually sent over to us a list of some topics that he felt like were ‘critical issues’ that he had dealt with over the past two years.

Dustin Snyder: Everything I have screwed up on.

[0:10:00]

Mike Wille: Ha ha

Jeron Paul: Ha ha. Okay, great. What better thing to hear right now is what to avoid, right? It’s like the Top 5 or Top 10 things to avoid. Actually the list is, I think, a little longer. How many is it? Anyway, we’ll go through this. Talk through it in order if that works for you, or anything in a logical order that works for you. Mike, do you have anything to add?

Mike Wille: No. I’ll let you decide where you want to start, and then I’ll dig in and ask some questions about whatever it is that you choose.

Dustin Snyder: Sure.

Jeron Paul: We’ll try not to interrupt too much, but I’ll reserve the right to ask a few questions.

Dustin Snyder: Of course. I wanted to talk a little bit about how my role has changed here at Banyan over the last couple of years. You go from wearing multiple hats, and then you grow, and at some point there’s a breaking point… where I broke. Transactional volume goes from 300 a month to 1,000 a month; complexities of having multiple departments and organizations. There comes a time where you need to bring in help. One of the things that I wanted to talk to you was the controller.

Actually I really enjoyed playing the controller for a while, when transactional volume was manageable. I’ve got a set of HR accounts. We had no cost of goods sold. In our panel, it was just cash receipts, expenses, profit/loss that showed. I got to jump in and set that up the way that I wanted to.

Jeron Paul: You were not in Quickbooks at the time?

Dustin Snyder: KPO. KPO is still what we’re using. It’s working out fine for us. There will be a day when it just isn’t robust enough—I know our controller would love some automated revrec capabilities which KPO just doesn’t provide.

Finance is a forward-looking role. If you’re spending too much time in the books, seriously it sucks you in. I have so much respect for accountants—I love them, I love the information they provide to finance to be able to look ahead and forecast and do all of that stuff—but if you’re trying to be the controller, you will get sucked into that world. You will spend most of your time looking in the rearview mirror. Especially in the early stage with fundraising, there is a constant need for forecast and all that stuff, knowing what your runway is.

Mike Wille: Yes.

Dustin Snyder: They need somebody to look forward. So we brought out a controller. The earlier you can get a controller the better, because that will enable you to really focus on what your true role is—and that is to look ahead and turn the business strategy into a financial model to help guide and direct the company. That’s one tidbit. For CEOs and founders out there, don’t push it off too long because then you’re going to end up paying for it later. Let’s be honest: Cash accounting is one big thing, but GAAP is totally another monster. The longer you wait, the more stuff a controller is going to have to sift through. When our controller started, he had to go through 40,000 lines of transactions.

Mike Wille: Oh no.

Dustin Snyder: And this was up against a deadline of doing a review. It’s not like he had the privilege of taking his time on it. He did a great job, he passed our review.

Jeron Paul: By the way, can I just put it in just for those who are a little less experienced than you are… A review is the level that comes before an audit, right?

Dustin Snyder: Yes.

Jeron Paul: Typically you will engage an audit firm to do a review generally a year, 18 or sometimes 24 months before you are actually anticipating an audit, right? It’s to help you get ready for an audit, so it not quite so onerous to make the full audit.

Dustin Snyder: It’s a warmup. If you had a startup and from cash to accrual you’d instantaneously be audited, it would be a nightmare.

Jeron Paul: They probably wouldn’t sign up.

Dustin Snyder: Yeah. Even going through the review is a lot of work, but yeah, I couldn’t have done it by myself. Absolutely not. I don’t think I could have done it with third-party help. Having somebody to look outside in, doing your books—that works for a while. This is one of my talking points as well: Third-party versus internal accounting.

Talking about accounting—the better your data is, the better your accounting is… The easier your life is going to be as a finance professional, because you rely on all that information. Heaven forbid you’re the guy that’s creating it too.

Jeron Paul: Yup.

Dustin Snyder: Honestly when you’re starting out, budgets are tight. You’re probably going to have to use a third-party for a while and that’s just the way it is. But there will come a time when you’d just need better financials, you need better information to pull from them… S&M expense becomes very important if you want to know what your customer acquisitions cost is. If you’re keeping track of that, your payback period, all these numbers have an accounting input.

Outside a third-party, they can’t compete with somebody on the inside that can walk on their office and talk to the marketing director, talk to the sales director, and get the insider information on where these expenses should go and how should they be classified, how should they be treated. Founder, CEO advise here is hire the controller as early as you can. It will save you so much headache down the road.

Jeron Paul: Yeah. You’ve already mentioned it, but I want to highlight it. Where do you think that transition period is? Maybe speaker for a SaaS company at least. You already said as early as you can, but…

Dustin Snyder: When does it become necessary?

Jeron Paul: Yeah. When does it typically become necessary? Is it 2 or 3-million in revenue? Is it 4-million in revenue? 5-million? Is it not revenue based?

Dustin Snyder: It’s transactional. How many transactions are coming in on a monthly basis? I was doing 300 a month and that was fine. I was coming in and booking 10-15 entries a day. Not a big deal.

Jeron Paul: Yup.

Dustin Snyder: But as soon as that becomes 100 a day, then it’s like “Okay, I’m spending all day doing this. I’m getting behind on what I should be doing.”

Jeron Paul: Perfect.

Dustin Snyder: As the complexities of the business grow—the number of vendors, the number of business units, if you want to have departmental budgets, all that kind of stuff—you need a controller. If I were to put a number on it, I was feeling a lot of pain around 4-million in revenue.

Mike Wille: That’s good, that’s good. You need to start early.

Dustin Snyder: You need to start pitching a fit, raising your head earlier because you’re probably not going to get one right away.

Jeron Paul: That’s actually the other thing. I want to get through your points actually. I think it is a great point you bring up here. Startups are notorious for investing at what’s going to drive the growth engine. CEOs like myself at Capshare—we’re often really focused on sales and marketing, but accounting is sometimes of an afterthought, right? “Hey, do I really need to spend on this?”

But I loved your point of “Hey, this accounting data becomes the underlying data that is going to help us in fundraising. It’s going to help us in payback periods, in ROI analysis.” It’s the language of decision making for the business. It’s pretty critical. In my opinion as a finance professional, you will probably have to start patting the table a little earlier than you’re probably going to be comfortable with to get your CEO to say, “Yes, this is important.”

Dustin Snyder: Yes, humble yourself. We think we can do so much. Finance people and accounting people are the workhorses. It’s not rocket science, it’s a time thing. Obviously, if it’s a time thing you need more bodies. We just have one controller, one Director of Finance, we have the VP of Operations that oversees finance and accounting, we have an in-house legal right now. My position went from one and now we’re 4-5 people, but we still don’t have [0:20:00] tons of folks under us doing the number crunching. We’re still at a point where we can manage ourselves.

Jeron Paul: Great, let’s go to your second topic then. I really appreciate that.

Dustin Snyder: The next thing I wanted to touch on was something called ‘the client cube.’

Mike Wille: Yes, I was curious about that.

Dustin Snyder: This was something that we were introduced to during fundraising. This was how they looked at our business. Essentially what a cube is it’s an Excel model (if you can’t afford a robust software, an Excel model is fine) that has a line item for every one of your customers that you’ve signed up from beginning to current day. You want to have a contract start date, contract end date, how many business units. Some people like to look at logos, but you also need to look at how many units are within that logo. If you’re trying to calculate the customer acquisition cost, you don’t want to use a logo. You want to use locations.

Jeron Paul: That’s particularly relevant for your business, right? Because you might sign up a chain of practices.

Dustin Snyder: Yeah, we have DSOs, dental service organizations, which could be up to 800 to 1,000 locations.

Jeron Paul: Capshare, by the way, is very different. A logo generally for us is, “That’s the client.” That’s like one per client. But I think it’s important to point out for our listeners that for you that’s not the case, because you’re probably trying to get to a customer acquisition type of thing. So every one of those location is a paying customer for you.

Dustin Snyder: Right. If I sign up an 800-practice DSO and I only put one in the denominator, your cash formula is going to look really awful. You want to track the unit’s start date and every month what they were supposed to pay you from a contractual standpoint. We don’t only care about whether they paid you, but what they were supposed to pay you. Let the AR deal with collections and stuff like that.

With all that data, it’s really simple. But the hard part is if you’ve gone in business for 2-3 years and you don’t have that, all of a sudden you’re digging back in time to find all the historical data (which I had to do—it was not fun). Literally I’m diving into the gateway, the credit card processor to see payments that came in.

Jeron Paul: It was rough.

Dustin Snyder: It was super rough. Updating them on a monthly basis, bringing in new accounts and then seeing what everybody paid you is VLOOKUP in Excel. It’s not too difficult. But with that one set of data, now you can measure monthly recurring revenue.  You can measure churn, new MRR, ending MRR. Your MRR rollup measure in there. You can get your logo churn, numbers which you need to know to calculate LTV and all these other stuff. It’s a fountain of data.

And then you can slice and dice it with pivot tables. If you’re like “Whoa, why did my retention suddenly plummet in this specific cohort?” you can isolate that cohort and see and then find out “Why, so and so is not paying us?” BI and data investigation can be with that one tool.

When I’m doing my forecast on a monthly basis, I’m continually going to the cube to update assumptions in my model. That is my source of truth for MRR.

Mike Wille: That’s cool.

Dustin Snyder: It’s great when somebody, internally our investors, need that information. We send it over. It’s got decay curves and retention tables already built out. It makes us look like we’re really smart even though we’re not.

Jeron Paul: Ha ha. Would you mind if I ask what does the client cube mean? Somewhere around that.

Dustin Snyder: You can turn it, you can look at it in different ways. I think ‘cube’ is an audit term. We you get reviewed or audited, they’re going to want a client file. There’s another term for the client cube. I’ve heard they called it ‘cube file.’ They started with cube, because it’s kind of catchy.

Jeron Paul: That’s cool. Can I ask one other thing on this? Do you do traditional? A lot of SaaS companies obviously track MRR, but what about LTV:CAC? Do you do LTV:CAC ratios, payback periods? Is this the source for all of that? Does it come from the client cube?

Dustin Snyder: It’s hard to calculate LTV for a company that has only been around for 3-4 years. So you’ve got to take a monthly churn rate, and you’ve got to work from there. Get the inverse of the monthly churn rate and that should give you a monthly life. Right? That comes from the cube. You can get average revenue per user from the cube…

Mike Wille: That’s awesome.

Dustin Snyder: Take that, divide it by your monthly churn rate, boom—LTV.

Jeron Paul: I’ll get a little technical, do you discount your LTV at all?

Dustin Snyder: No.

Jeron Paul: It’s just LTV. You just basically take your churn rate and divide that to the average revenue per year per user, and that’s going to give you what your total value of a customer is.

Dustin Snyder: I remember when I was fresh and was building the LTV model out. I was like, “Sweet, discount rates!” I built it out that way, but then VCs and other people were like, “Nobody looks at that. Nobody cares, at least on our level.”

Jeron Paul: Capshare’s LTV got about 10%. We discount it, and you’re right. That’s actually a valid insight. VCs don’t care about it.

Dustin Snyder: At least on our stage.

Jeron Paul: It’s like, “I’ll go a little bit on the arcane stuff. What’s your discount rate?” For startups, we’re valuation folks. Startups discount rates can be ridiculously high that it hampers your LTV:CAC ratio. I’m glad to hear you saying, “Let’s just not play those games. Let’s just look at the overall values and use these as benchmarks that we can compare across different companies.”

Dustin Snyder: How are you going to justify a discount rate?

Jeron Paul: It’s very hard.

Dustin Snyder: If you’re starting a company, you should create the cube, this tool from Day 1. You’re probably not going to have money to keep track of all of these information in an automated fashion…

Jeron Paul: But use a spreadsheet, right?

Dustin Snyder: Use a spreadsheet, keep this from Day 1, and it will bless your life down the road. You won’t have to look back like I did, which was just awful.

Jeron Paul: I think that is tremendous advice, Dustin. I want to underline that, underscore it.

Mike Wille: I know, for sure.

Jeron Paul: Really great piece of advice.

Mike Wille: If I may come back to you, a little bit more of a write up on the client cube… A little more detail, how to build it?

Jeron Paul: Or if we could just get that? Is there any way we could get that Excel model of dummy data, even with just the headers or something that we can actually put in the article and make it downloadable for you? I don’t know if it will be useful for you. Anyway, we’d love that too because people share their email addresses and we can talk to them and engage with them. “Here’s the skeleton cube. You’ve heard Dustin talking about it. You can download it here.”

Dustin Snyder: It’s really not that sexy. People are going to open it, and they’re going to go, “This is it?”

Jeron Paul: The simplest tools are often the most effective, honestly.

Dustin Snyder: Yeah.

Jeron Paul: I mean I wouldn’t worry about that at all.

Dustin Snyder: You don’t want to be building one when you have 1,000+ customers.

Jeron Paul: Totally. I think that’s very helpful information, and we’re going to try to include a link to a template cube that will accompany the video. Thanks for sharing about that. Maybe we can talk about the next order of business here.

Dustin Snyder: Let’s see. Next thing is cash forecast. One thing I’ve seen people do is—they’ll build a really nice, complicated model but will base it on MRR. MRR does not equal cash receipts. In a sense, as a startup you’re living by your cash balance. [0:30:00] You are living by knowing how much life you have left. You need to know when you have 6-9 months of life left because that’s fundraising time.

Jeron Paul: It’s fundraising time, hardcore. You’re right, you don’t want to be off by three months on that. Or even a month.

Dustin Snyder: You can’t afford that mistake. It’s great to have a Gap Model. We don’t, we’re really living by the cash forecast here. We actually have an in-house term that we refer to as CRR, instead of MRR—cash recurring revenue.

Jeron Paul: This is so great. You’re probably a couple of years ahead of Capshare, but we’re dealing with these things right now. This is the stuff we’re struggling with at Capshare on our accounting side.  I was going to ask you—you’ve mentioned it would be great to have a Gap Model, but Gap isn’t going to solve this problem either. Will it? I mean, what you really want is a true recurring cash number. That number isn’t necessarily going to show up in your Gap financials. I don’t think it would. Maybe on the cashflow statement, if you were doing that perfectly or something?

Dustin Snyder: Honestly, I don’t even know.

Jeron Paul: I don’t know, I don’t think it would though. There’s a piece in me that doesn’t think it would. Anyway, I just wanted to plug that. This is something for startups: You can think you’re doing everything right, and you could be doing a lot of things right. But really need to get a hand on cash, and sometimes those numbers are very important. From the traditional metrics you’re used to reporting to investors, like MRR, or for sure, even the metrics that you’re using in your income statement even if it’s GAAP compliant. I just want to highlight that. Anyway, let’s talk more about CRR.

Dustin Snyder: Yes, cash recurring revenue. If you’re a business that has a lot of prepaids, there’s going to be a big delta between your MRR and CRR. You’re getting money upfront, so what you want to do is arrive at a number…

Jeron Paul: Which is a good thing.

Dustin Snyder: It’s really great if you can pull that off. With the size and type of what customer we’re dealing with, it’s a tough selling point to be honest. They’re never paying us monthly. It’s pretty simple—just download the report from your billing software and say, “Who’s paying me every month?” That’s where you start.

Jeron Paul: Starting point.

Dustin Snyder: Starting point. If chargebacks and AR are a pain point in your business, you need to factor that in. Factor declined credit cards to get a safe cash recurring rate number, and then you simply go from there. That’s your top line, and then you line item out every one of your significant expenses when they pay you. Do not amortize it, because that doesn’t do any good especially if you’re a Salesforce client and you have an annual payment coming out that is $200,000+. Amortize that in a model and base a runway on that? You’re kidding me. You can’t do that.

Jeron Paul: Nope, you can’t do that.

Dustin Snyder: We live in that cash model. The most important assumption is that CRR at the top.

Jeron Paul: Have you ever made a push for profitability? You’re probably growing so fast, so I’m guessing that’s not a strong priority of your investors. But I’m just curious if you have pushed for profitability or if that’s something that’s on the radar or consideration…

Dustin Snyder: Never.

Jeron Paul: I think by far that’s the most common experience of most startups. It’s interesting because Capshare achieved profitability in May, and we’re back into unprofitability lane right now because we’re growing so fast, but we did make a push for a period of time to get there. There are some interesting nuances as to how you think when you start thinking about expenses.

You are absolutely right. Cash is really important for the average investor-backed startup, because you don’t want to get cash negative or cash neutral before your next round obviously. When you are trying to drive towards profitability, you want to amortize a little because you want to start thinking about “When did I really crossover? My cash balance went up crazy this month, but maybe I’m going to get another big hit a month from now!” You want to see that.

Dustin Snyder: You need the accrual. Your common size ratios and gross margins, operating margins—all that stuff makes way more sense on accrual basis. It smoothes out. You need both.

Jeron Paul: You can’t go without the cash forecast. The day-to-day decisions…

Dustin Snyder: As a finance professional, my cash model I open every day. I’ve got a folder for backups, old versions every day. It’s copied and pasted into the backup folder. I’ve got my [inaudible – 0:35:25] version that I’m working on. If somebody comes to me and they’re like, “We need to hire.” I plug it in and see what it does. It’s a living document.

Jeron Paul: That’s awesome. I would love to see it. That’s the special sauce.

Dustin Snyder: Our job in finance is managing cash.

Jeron Paul: Did you invent that model? What was your starting point? Maybe in your old Moss Adams days, you had a forecasting model and you hacked it? If it’s proprietary, it’s fine.

Dustin Snyder: I did not take anything. I really started from scratch.

Jeron Paul: Great, good job. And that’s probably the smart thing to do coming in, because that really helps you understand the business and to build a model frankly that’s totally tailored to the specifics of your business.

Dustin Snyder: That’s the fun part of the job. If you like being creative or you want a creative element to your job, building a model is where you get to exercise all of that creative genius. If you have it.

Jeron Paul: Ha ha. I understand why you can’t talk to your head of HR using Excel language or whatever.

Dustin Snyder: I never coined the term CRR. That’s a Banyan term.

Jeron Paul: You should trademark it.

Dustin Snyder: We should trademark it.

Mike Wille: I thought that was really cool.

Dustin Snyder: The next thing on my list was cash budget. Our forecast is up here and the budget is driven by what’s in the forecast, right? Every month, we dump the inputs from the forecast departmentally into different buckets, and that’s the starting point for the budget for that month. We’ll send that out on the 15th of every month. We’ll get input. I’ll call the budget. We call it at Banyan the budget survey.

It’s a Google doc and a Google sheet where they answer some critical questions. “What should we know about that’s going to impact our forecast?” “Are you going to be hiring?” “Do you need new software?” They fill out that Google doc. We actually provide them with a Google sheet (which, I think, you can get away with). I think as companies grow I don’t think they ever ask a director of the department to touch an excel file or to populate it. Really here it works all right, it works pretty well. It’s very smooth now. They’ll go in and they’ll see what’s in the forecast, what we think is going to happen. They’ll update a few numbers based on what they know, write in that file and then type up a little explanation…

Jeron Paul: One piece in this process that I’m kind of missing, it’s really interesting—who is authorizing those increases in budget? Maybe that’s a whole separate conversation, but I’m just curious about that. This is an interesting thing at our stage at Capshare. Pretty much a lot of those authorizations are going through me or our president, the COO… Just because we’re small enough still and growing rapidly that I can still major in changes to investments. I generally want to review. How does that work at your stage in the company?

Dustin Snyder: Sure. There was a stage here at Banyan where the CEO and the founders, everything went through that “Yea or nay.” Now we have what we call the budget committee—it’s comprised of myself, our controller, and our VP of Operations. We’ll get all that new information from the budget survey, plug it into the forecast, and I’ll do a variance analysis and say, “Here’s what changed.” We’ll look at the burn rate [0:40:00] and say, “Are we not comfortable with that? Or if we comfortable with that, let’s do it.”

Jeron Paul: Okay. I think that definitely answered my question. The key piece of information I was missing there (and hopefully it’s helpful for our listeners) is—that budget tool you were using isn’t saying, “This is what’s going to happen.” It’s like a request. It’s like, “Hey Dustin, we’d like to hire two heads.” You take that back to the budget committee, and that’s actually your tool that you’re going to use in the budget committee. You’d be like, “There’s a big delta in HR.” You’re probably going to back to your cash model and say, “Could you just hire one right now? We’re about to raise a new round.”

Dustin Snyder: Yeah, and that’s where the cross-departmental work comes in. My job every month is—after they fill out that survey, I’ll go and sit down on questions with (what we call) the budget owners… the Assistant Marketing Director, for example. I’ll sit down with him and say, “I see you want some new hires. Help me understand.” It’s so easy just to say no, but a business speaks and lives, and breathes and needs certain things.

We try to really understand why people ask for what they are asking. I would say most of the time it all makes sense. There are occasions where the ask is completely legitimate and it’s something we need, but we’re not comfortable with spending the money at the time. And so we have to wait until that recurring revenue base increases to where we are comfortable to commit.

Jeron Paul: It makes sense.

Dustin Snyder: It’s hard to predict sales and control sales. You can’t control somebody to say yes or no. You can do your best, but investors expect your expense forecast to be dialed because you can control that. I see that as a big part of my job, making sure that we don’t blow our expense budget or gross burn out of the budget. It’s something that we have dialed in here. It’s like, “I’ll give you guys a really high level of our process internally.” It has worked really well for us here at Banyan. People will always complain about having to do the surveys. I can’t blame them, they’re busy. We’re still multitasking and all that stuff, but I feel that expenses are under control here and that makes a happy finance guy.

Jeron Paul: And it makes a happy board.

Dustin Snyder: Happy investors.

Jeron Paul: No mistakes on decisions, or at least minimal.

Dustin Snyder: There’s nothing worse than going into a board meeting and saying that you blew your burn, your net cash burn number out of the water. VPs hate surprises.

Jeron Paul: Or they love it, but you should hate it as an entrepreneur. What they’re going to say is like, “Oh yeah, we’re happy to give you another $5-million.” And you’re like, “Why?” You want to be in a very tight control. That makes tons of sense.

Dustin Snyder: We went over our expense significantly, but it was because we doubled our sales forecast or something of that nature. If we get to tally these commissions or all the new growth we had, that’s a little different. As a finance pro, you’ve got to own the expenses of the company with the help of a good controller.

Jeron Paul: Earlier in the video we talked about that. That’s great. We head to the next item…

Dustin Snyder: Cash accrual

Jeron Paul: We did not talk about that. Why don’t we do that next?

Dustin Snyder: Yeah.

Jeron Paul: Maybe you can give us a little context what that push has become necessary? Especially after all the CRR talk.

Dustin Snyder: It probably wouldn’t have happened, had there not been some kind of impetus to move us at that direction.

Jeron Paul: Just to put a bookmark in the video, we’re now talking about the transition that Banyan made from going from cash accounting to accrual…

Dustin Snyder: When you partner with a bank, the bank is going to want to see accrual financials.

Jeron Paul: Absolutely.

Dustin Snyder: That was the main driver for us. They were nice. Instead of ‘Year 1’ reporting, we’ll get by the review. Next year, it has to be accrued. For bankers out there, that’s super appreciated because if we had to go from cash to accrual we can audit them immediately. It would have been really hard.

Jeron Paul: Talk to me about bankers again. You’re very sophisticated. Are we talking about venture lenders here? Are we talking about traditional banks? You’re probably looking at the usual suspects—Square 1 Bank, Comerica. I don’t want to offend anybody, but you know obviously Silicon Valley Bank. I’m sure you have talked to a bunch of these, and I apologize if I left some out. First Republic have a heavier presence in California. Those are some of the vendors out there. Anyway, do you mind if I ask which bank it was?

Dustin Snyder: Sure. It was Silicon Valley Bank.

Jeron Paul: SVB, okay great. So let’s talk about that.

Dustin Snyder: During our second C round, we did a two and a half-year growth capital term loan. Great terms with a warrant for a very small interest in the company. I felt like it was extremely fair. Not going that route, you go from about 4-4.5% interest rate. I didn’t even look at other routes, but I’m sure it’s 15%.

Jeron Paul: Maybe this was a decision at the board level, maybe it was Tom’s decision or maybe it was your decision… Why did you want to go to that venture instead of just raising equity?

Dustin Snyder: The cost of debt is significantly lower than the cost of equity. It was on the table. With the round we were raising, it’s nice to a little emergency backup fund. It was a good move on our part. We’re really glad that we added that [inaudible – 0:47:15] on that C round.

Jeron Paul: Great. Anyway, coming back, the bank basically said, “Hey, we need you to get onto accrual accounting, but we’re going to give you a year or so to do that.”

Dustin Snyder: It’s a lot of work, I knew that. That’s why I would hire a controller. That’s probably why I would hire a controller. But being naïve, not knowing the amount of work that goes into that, it’s like, “Sure, I’ll get some outside help. I’ll try to do this and can make this happen.” I think we got halfway there before I realized that (in my opinion) this is not a job for an outside entity to come and try do for us. It’s a lot of work than you think it’s going to be. My best advice is hire yourself a controller to handle that, and give him more than six months. Give him a year to get that under control.

Jeron Paul: Yes, it’s easy to raise venture debt when you are closing in a new round, but it’s not easy to get on to accrual accounting. You almost need to say to your CEO, “If it’s likely we’re going to be raising a new round sometime in the future, and if we are going to be adding debt, it’s a good idea to get a controller here fairly quickly. We need to make a pretty good transition.”

Dustin Snyder: Yes. They’re my colleagues in the bus, going like, “Hey, let’s push this as far as we can!” I would have done the same thing in their situation. It’s like, “How can we grow the company?” A controller is not seen as a component to growth.

Jeron Paul: I completely get it.

Dustin Snyder: I think you can argue that it is.

Jeron Paul: And I think you’re probably going to get one earlier if you make that growth argument. I think that’s what you’re saying.

Dustin Snyder: The crummy thing about going from cash to accrual is that—I really like to being able to open up Quickbooks and have cash balance sheets… It’s really easy to forecast and do all of that stuff. You introduce accrual accounting, and then all of a sudden those big prepaids from customers are now going into different revenues.

Jeron Paul: Do you get any benefit from that, besides the fact that you’re just compliant and now have the loan? [0:50:00] Is there anything you find useful?

Dustin Snyder: Really good question. Investors will care when you break even from a Gap standpoint.

Jeron Paul: It allows you to compare ratios, like you mentioned earlier about ratios. You don’t even know what your gross margin is. The cash accounting can get it, but what I’m saying is it’s better, it smoothes out your revenue and expense to get a better sense of the key ratios in the business.

Mike Wille: That’s a lot of what we look at. We were looking at getting to break even for a long time and profitability.

Dustin Snyder: Yes. Speaking of break even, honestly, we dreamed about break even. It was always like this milestone two years off in the forecast. That’s important. I don’t want to diminish the value of breaking even.

Jeron Paul: That’s what your investors frankly want, that’s what your board wants. It’s probably going to make your company worth more.

Dustin Snyder: If you’re going to be working with VCs and you’re going to get debt, think about when the transition is going to happen. Pretty quickly. It could be a nightmare if your existing records are a mess. It’s going to be a task, and you don’t want to brush that task.

Jeron Paul: That’s great. We might be getting close to the end. We have not talked about reviews and audits. We did touch on it.

Mike Wille: We did.

Jeron Paul: Oh yeah, we did briefly. I think that’s a good place to end. I don’t want to miss anything; these notes are so valuable. If there’s anything you feel like we’ve missed, let’s actually pause for a minute and make sure you have the chance to look through.

Dustin Snyder: Let me see if I missed anything. Okay, here are a couple of closing points. We were talking about the cash budget and I failed to mention probably the most important part of the cash budget—you need leadership sendoff on the budget process as a whole. If leadership is not pushing that or making that a topic of discussion, an important aspect of the business, good luck controlling your costs. It needs to be made a part of how budget owners’ performance is measured.

I remember the day when we came into this room and leadership said, “If you can’t manage your budget, we will find somebody else to do it for you.” Meaning, you won’t be doing your job.

Jeron Paul: Kind of like a threat. Ha ha

Dustin Snyder: It’s a part of your job as a director of a business unit. It’s critical. It gives you so much credibility when you can say, “This is what we’re going to spend,” and you actually do what you say. It’s crucial. Leaders need to push that. They probably don’t care what the finance guy thinks or wants to do, to be honest. Not to diminish the role, but that was the day the gavel was pounded—that was really when things made my life a lot easier.

Mike Wille: That makes sense because a lot of people want to control their own departments. They start saying, “This is what you can spend or can’t spend.” That directly impacts someone else’s department. It makes sense that you need someone whose role is to be directly over that department.

Dustin Snyder: Yeah, and the budget survey that we do is supercritical too. It forces the business unit leader to sit down, stop, get out of the day-to-day and think ahead like a CEO. I get the benefit of having all of that information to build into this model.

Mike Wille: What a cool job to be able to own a business unit and think like a CEO. A huge part of how CEOs think is budget based. That’s cool. Do you mind if we finish up on talking about the transition to a review and then to a full audit? Where you’re at in that process?

Jeron Paul: Any advice you have in preparing for an audit? We just actually published an article on ‘Getting ready for your first audit.’ It’s a hot topic for us. We’d love to hear your thoughts about that.

Dustin Snyder: Honestly, my involvement now that we have a controller has been minimal. I’ve been involved with going to lunch with these audit firms. I helped pick our audit firm, but the brunt of the weight is being carried by our controller thankfully. He threatens us, he tells us all the time, “Audit is no joke. You thought the review was hard? Buckle up, because the audit is a whole different battle.” As far as the preparation that’s going on internally right now, we’ve now picked our firm.

Jeron Paul: Was it a different firm? You don’t need to name your answer, but was it a different firm than the one that did the review?

Dustin Snyder: Yes, it was.

Jeron Paul: Okay, but the review still helped you to get ready for this larger firm…

Dustin Snyder: Most definitely.

Jeron Paul: There’s no conflict there, right? You could have used the same company that does the review to do your audit. Just curious.

Dustin Snyder: I’m not sure, because they do our tax work, so there may be a conflict of interest there. However, there’s beginning balance sheet procedure. Part of what goes into your first audit is something called beginning balance sheet procedure. This has to happen regardless of whether or not you had a review—they’re going to look. For example, an audit in 2017. They have to go to the balance sheet as of December 31, 2016 if that’s your fiscal year, and close, and they have to audit those amounts. Because if those amounts are wrong, then everything else trickles and is wrong. That’s an added cost to your first audit and it goes away on the subsequent ones.

Jeron Paul: You get everything that has happened up until then, ready to go. That balance sheet is accurate. For the non-auditors and the less technical, your balance sheet really drives all of your financial statements. That’s a great starting point. Get that thing right and then everything should flow in the proper reports in the right way.

Dustin Snyder: Make sure you go on a lot of dates with different audit companies. I mean, you’re going to pay for it eventually. You might as well go out to lunch with them, see them outside the office and see what they’re like, if they’re human or not.

Contracts. You need to make sure before you have a review or an audit that you have all of your contracts in a central location. By contracts, I mean vendor contracts and especially your client contracts. Because with revenue recognition loss…

Jeron Paul:  Rev rec is such a pain.

Dustin Snyder: They’re going to pound the hell out of that. They’re going to do sampling and they’re going to find some.

Jeron Paul: They’re going to find some.

Dustin Snyder: Yeah, you don’t want to be missing contracts. So get that all square and organized, start at Day 1. The best practice is to cube and have all your contracts stored and organized. That’s part of the data cube—you should have a column that says “contract, yes/no.” You know which ones you can’t find. I don’t know if these are problems that are experienced at other startups, I hope we’re not the only ones that have made these mistakes.

Jeron Paul: No, I guarantee you. Well, Dustin, would you mind if I wrap up? It’s such a pleasure to talk with you. You have a lot of energy, which I really appreciate, and honestly so much insight into the finance position in the startup. Really cool stuff. Obviously, some great tools that you mentioned—we’ll try to get the ones that we can for our listeners. We’ll try to get some sanitized, skeleton versions and tools. We really appreciate it. We’re going to copy this video with an article, so make sure you read the article. We’ll add some more details and highlight some of the key terms and maybe explain some of the words, define more complicated concepts that Dustin was using. Thank you so much!

Dustin Snyder: Yeah, it was a pleasure. Thank you.