Support for CFO Thought Leader comes from Plantful and U.S.Bank.CFO Thought Leader is pleased to feature this episode of the Controllers Classified podcast, hosted by Eric Zhou, Chief Accounting Officer of Brex.
Welcome to Controllers Classified, the podcast where we take a deep dive into the dynamic world of controllers, accountants, and finance leaders, and hear how their ever evolving roles are redefining accounting and the future of business.
And now here's your host, Eric Zhou.
Welcome to another episode of Controllers Classified.I'm your host, Eric Zhou, the Chief Accounting Officer at Brex.And today we will be exploring the role of accounting in scaling a business as well as public company accounting processes.
Our guest today is Eric Van Cleave.Eric, it's a great name.He's the controller at 8x8 and Eric has seen it all.From the challenges of rapid growth to the strategies that ensure financial stability during expansion.Welcome to the show, Eric.
Thanks so much for having me on air.Happy to be here.
I always kick off by asking the guests, like, how did you end up in accounting?
I took one, one accounting class at the end of college, and I should have done that from the beginning, but it was just that one class at the end and found myself loving it and jumped in headfirst.
So you got in at the end of college.That means like you had catching up to do to get all the major credits then.
I took an accounting major from there and then I got my MBA and the rest is history.
And then tell me about your story.So like when I was, I got my accounting major, got my degree.I ended up working at a accounting services firm at first before moving into industry.What was your story?
So my story is I started a lot in industry from the beginning, in which case I started at the low ranks and just worked my way all the way up.So I saw it from the very bottom, right?And now have a broad picture as to where to see things.
In terms of scaling and talking about business and companies like that, it's interesting to have been like a small company and working my way all the way up to huge companies, right?So I've seen both big and small.
I was at my accounting services firm.I worked at a big four.I worked there for 11 years.And the first thing when I moved into industry was it was a huge transition.Just, I was auditing, right?So I wasn't responsible for the actual books and records.
I wasn't doing any of the creation of the books and records.I was just checking the work.And so when I got this role, I had to really change my mindset on like, It's not so much the result.
The result is obviously important, but the process itself of doing the books and records became really important.And I feel like because you just went straight into kind of an industry to do that, you got to see all of that firsthand.
Like, so have you been through all of the kind of sub functions within accounting or how has that worked throughout your career?
Yeah, I've been in, in all the sub functions are in AP and GL, right?Fixed assets, cost investments, and you've built upon that, right?
Had a small foray with corp development and looking at all the different kind of functions within an organization and understanding and picking what are the best practices along the way.
After you've done that for 20 years, you can figure the things out that you like and the things that you don't.And in those situations, I guess,
What I found is that Brex specifically, like we hire folks.We don't, I don't have a training program for all the staff that come through the ranks at Brex.When I was at my firm every year, there would be a one week training or two week training.
It catch you up on all the technical stuff.It catch you up on things that are happening in the various industries that we worked on.Like what was your experience getting the training that you needed or how did you go about that being an industry?
I found myself being very proactive and going after the areas that I wanted to be a part of, right?Because a lot of times what I found is that managers and directors and VPs, what they're really looking at is who's interested, right?
Number one, and number two, who's capable, right?So if you're capable, and you have a good level of aptitude, I think you can find yourself being in all the interesting transactions that the company will have. Right?
Because they want to see people who are motivated and can get the job done.Right?And it's always okay to ask questions, because you're not expected to know everything, especially while you're learning.But the biggest thing is, can you communicate up?
Can you communicate down and make sure that you can execute like more on a project plan basis.So and that's the fundamental ways of being able to look at those learning opportunities that a company can provide.
What about on the technical side?
So, you know, like the biggest chops that I got when I was at the firm was I worked on so many of these like complex transactions and I really delved into Gap and I became more of a technical accountant than anything.
I had to really pick up on the operations.How do you think about yourself and keeping up with the technical side or how involved you are on that when it comes to Gap accounting?
When you first start out, you don't realize that there's an ultimate memo that every company is writing to make sure that all the technical accountants are staying up on things, right?
But one of the biggest factors is you research the accounting, you make sure that you understand the transactions, you're going for like a full loop on
the process, you find out what are the actual like process flows, you look at internal control, controls and the narratives they've got.And then you can start to piece together like what the full spectrum is.
Because one of the things that I found with a lot of interviewing through all these jobs is that there's definitely a categorization between what's a technical accountant and what's an operational accountant.
I found many times there was discussions within interviews that you're discussing how good you are in capable in both of those different
areas because it might slot you in roles that you might be better suited for, just like any employer would want to make sure they're maximizing their, the skill set of the people that they're hiring.Right.
So fundamentally to be good at both, you have to put enough time into researching those.Right.So if we're going to do say an equity investment, right.
You need to need to know the accounting and you want to go in and dive into the foray of that, but you collaborate with
your auditors, your internal auditors, your SOX group, if you have them, right, and you leverage all of that information, and then you just do a little homework on your own.So that way, when you go to those discussions, you're well prepared, right?
You're not asking silly questions, you're showing that you have an interest in that anything that they teach you, you're going to be able to retain and absorb and use for a better purpose.
For the audience, can you give a little background on the current size of your team and company and how you thought about structuring it?
Sure.So right now, we, my, my team is about 35 people, right from top to bottom.And the finance organization obviously is larger within within the company.But the way that we we're still working through the best optimization there.
And one of the things that I've learned out of my all my experiences, what's the real goal of the accounting team, right?Because each function is going to be a little bit different, right?
So if I'm looking at when accounting, the technical accounting group, right, I'm going to be thinking about what's the speed at which we can actually document memos and interact with the auditors.But if I'm talking about how can I actually get
our operations team to be able to close the books faster.Then what I'm doing is I'm thinking about, should it be functional?Should it be control or ship down?Right.
And obviously looking at all those independent decisions, but ultimately if you want to get to like a one day close, right, you probably need to structure your team in such a way that you're closing your sub ledgers first. Right?
Maybe in Asia-Pac, and then in EMEA, you've got people who are analyzing a lot of the details.And then the US, you've got the higher level consolidated view on does all the information make sense?And if everything is looking good, you're done.
And if not, you got to send it for another lap.
Being able to improve on the actual close takes a lot of effort, but it also takes some structuring and organization and some fundamental view of how comfortable are you for like estimates and controls and things like that as you're going through it, because you obviously you can make some decisions in the process to
make sure that everything is reasonably and fairly presented in your financial statements.
I'd love to dive deeper into what you just said related to estimates and like business day one close. I'm curious if the size of your team is commensurate with the speed of which you close the books.
So like, does that mean if you want to do BD1, that means you just have to hire more people because there's only so many hours in the day, like 24 hours.And so you need more people because you need more hours to be done quicker to get BD1.
Or how do you think about that?Maybe leveraging estimates, et cetera.
I suppose it depends on what you define by close to begin with.Right.Because everybody might just close AP on day one and then they'll go like another seven days and they'll be cranking through it.Right.
So it's understanding what's materiality and what's the right level of attention to individual transactions and going through all of those details. Right.
So when you're thinking about individual transactions, what you're doing is you're really assessing what's what's obviously most important, like you want all your recs to be completely signed off and reconciled and down to zero, right at the end of the day, because I just make sure that you've got proper documentation and everything that's in those accounts.
But if you're trying to get to like a level day one, right, you're trying to get to a day one. Right.
You're really going and looking at the significant transaction that the company has and trying to manage the volume across all of those transactions as well.I have a process that it was pretty manual.
You might look at adding some automation to be able to do that because there's a philosophy of eliminate, automate and accelerate.
And when you're looking at those components, you think about what is the work that the team is doing that just doesn't need to be done.Right.Like maybe the team just hasn't assessed.
They're the service level agreements and you're like, Hey, I send out these three reports, but nobody looks at it at all.Right.Do you really need to send those?Probably not.Right.And then can you, right.And then can you automate it?
Like, can you do memorize transactions where, you know, for recurring transactions, same dollar amount, you just manage a list and just make sure that all those details are being processed.So you're automating.
all of these manual entries that you don't have to do anyway, you still have to review it, still need to make sure there's support, there's still an agreement behind it.
But the actual process of doing is like I'm not uploading a journal entry and going to two levels of review and all of that, right?
Like, it's already based on initial agreement where you get the approval up front, nobody can change it until the stop date in the system as an example.
And then you just look at things that you can accelerate, like you need a file that has 50 tabs in it, or can you get away with something that they've got like a socks tab to show, here's where I follow my socks process, the auditors are happy and
Here's my support.And then here's a little stamp of review that you've got from your whoever is reviewing the transaction.So there's a lot of extra detail sometimes when I see in these files that just aren't necessary.Right.
But if you understand what the auditor needs, which is from a control perspective, you've got all of your screenshots and everything in there.Right.
There's a lot of times when you go into companies that people are doing things just because they don't necessarily understand every aspect that needs to be executed.So when you start to look at all of that, you can speed things up.
You're working at a public company now.What's your strategy to actually identify all these things?
Like when you join 8x8, were all these things like already eliminated or did you go through the process of making these structural changes when you arrived?
Every company has opportunity, right?And every company will just depending on how much attention has been there before.
So generally the way that I would approach it, regardless of whether it's 8x8 or a different company, right, is I typically look at what is the time to close currently?Like where are the teams located?How are you executing?What's the volume?
I set up some KPIs to see is it if I have 10,000 invoices of companies to process, how many AP people do I have?Am I leveraging automation? There's so much like OCR readers and things, right?
So you can set up a structure where you have high level oversight.And after a while, you start to get used to a single processor process, 25 a day, 50 a day, 100 a day, and you start to benchmark those metrics.
And if the company is slow, then you start to look at automation.If the company is fast, you start to think about, can I shift the process?
Can you give me an example of like something that you did shift that you ended up saving time when you were at 8x8 so far?
So a lot of automation really requires focusing on the full process from beginning to end, right?One of the scenarios is we were able to shift more people over into Asia-Pac, right?
And we started being able to close sub-ledgers first because really the fundamental goal is to get a 24-hour day. right out of it, right?
Because technically, if you're in the US, right, you can work from 6am, all the way until midnight, but you still don't have a 24 hour day, right?
You've got the people who are pouring their hearts out into it, but you're not necessarily getting the books closed any faster, right?You're just burning people.
So it's looking at, you know, one of the things that we, one of the things we've shifted, you know, is we're able to get, you know, a lot of the work completed first for getting the sub ledgers actually like closed.Right.
And even for companies that are in the U.S.And they're only in the U.S.Right.In those cases, there is automation tools as well that are out there.Right. Maybe I won't name names.
It's you look at the OCR readers and you look at the, you look at the AI processing and all of that.Like you can get yourself up to like 80% of those.Right.
And then you can also have AI, which is actually like reading agreements and looking for the key elements within those.Right.
So if you need like a summary of like a technical agreement or technical accounting, you can benchmark the two against each other, but with a background you can still review. Right.
And so looking at some of those examples, they do help to automate those.Right.But I think fundamentally, the biggest factor is the data that you're using to make those improvements.
Because if you can actually go down to here, my total population of JEs, let's call it 10,000 across the across a month.Right.You have that many JEs.Right.Even if one JE takes a minute. Right.That's 10,000 minutes you have to manage.
And then obviously that's all the people that support it.So to be able to fundamentally change your organization like that, you have to know what you're dealing with.
Cause what a lot of people will do is that they'll just be like, Oh, the Philippines is low cost.Let's do that.Right.Or the, or India is low cost.Let's do that.
There still needs to be a structure and a KPI behind doing that because you're still probably overpaying for the labor that you've got within the organizations.
Yeah, there's different kinds of scale that you need to bring into your organization as it grows and matures.So I'll give you a great example, like even at Brex.
We're a fintech and we have a bunch of bank accounts and we have a lot of money flows that come in and out of there just as a normal course of operations.And so our bank reconciliation process is like a big deal for accounting.
So every day we get a, we call it a buy to file or a bank account information file from all of our banks that we leverage for our business.And we try to do. that bank rec overnight.And that's because we have a team in India that's able to do that.
Now, if we didn't have that team, frankly, everyone goes home at like 5pm or 6pm, right bank statement just closed, but they're not going to be working through it.
And then they end up spending the next morning, etc, going through that work if we were onshore.And so we are also striving to have this like 24 hour turn on the key operations and accounting here at Brexit.
And that's where that India team is so helpful.We Bank accounts close.Overnight, they're doing the first reconciliations for every single account.In the morning, we see the results of that.
And there's about two hours where we overlap with the India team and we can discuss some of those items.
And usually by the end of the morning, like there's a couple of things that we end up following up with the rest of the business on to get more detail, but it's done by then.And that is actually one of the key factors on why we can close the month.
earlier in the cycle versus like what we did before.When we implemented that, we moved all this work to the left and flattened out the spike, so to speak, at the end of the month.
Because inevitably, like there's all this stuff happening and if you can't keep up with your bankruptcy every day in our business, it piles up and you end up like concentrating it all in that first week after the end of the month.
I don't know if you've had experience with that.Totally.
Yeah, 100%. Yeah, you know, even on the bank reconciliations, right, daily recs are key, right?Again, it's all based on volume, right?But it's in larger global organizations, you may have 50 accounts, right?
And you might have centers of collection, and you might have multiple customers paying into it. payments going out and different types of transactions, right.
So, so bank recs themselves, right, like there's other treasury management software systems that take advantage of that.
And they actually do all of the, they do all of the cash entries for you there, they can, you can literally learn, teach them what's a repeatable transaction.
So bank fees is coded and actually ported back into your ERP automatically, there's a little bit of spend to do that.But all of that stuff happens on a regular basis.And
I don't want to go on to a tangent of cash forecasting and all the other stuff that those can do, but they're pretty handy tools.But as far as like actual accounting work, right, they process a lot.Right.So ERPs have some functionality to do that.
Right.But it just really depends on which selection that you make.So. I think bank recs are key.And if you just go down, just go down the balance sheet, right?
Like accounts receivable, if you can automate the bills that are going out and if you have recurring bills, right?You get the approvals like that.
And then you get, if you have credit cards, you get like automatic, automatic payments and settlement that automatically like applies against it. Right?There's a lot of the banks, right?
They have lock boxes where you can get auto AR application, right?So there's a lot of additional like any sub ledger you have, you can probably get to a very high level of automation within each and every one of them, right?
So really, the things that you start looking at are going to be more of the non standard, right transactions where, you know, if you use systems to help you process those, right, then you have the ability to do
look through those agreements and get some key criteria digested, in which case you can also then get those new ones recorded where most of the executives will want to be looking at it.
One of the questions I always get from folks in my peer group is, how do I decide between leveraging an offshore team versus trying to automate it?
Maybe the solution is actually doing a little bit of both, but that sounds like really expensive if you want to do both. Eric, I don't know if you've come across this situation where you've ping-ponged back to the, okay, I automated it.
Oh, but this automation doesn't cover all the new changes to our business.So I'm going to supplement with manual.And then once you get up to scale on the manuals, okay, let's go back to automating it.Cause we got critical mass on this.
Like that's happened almost a couple of cycles already at Brex.It's interesting.I'm curious about your perspective.
So maybe I'll. If it's okay, I might answer it through like scalability, right?Maybe small companies through large companies, right?One of the things that if you're at a tiny company that has like three people, right?
Generally the person's trying to do sales as well as trying to do like accounting and those elements, right?There, maybe it's not as important to look at automation.Mostly it's who are the right partners and do you have the right staff, right?
On board to be able to execute, right?But everything is basically like a manual process.But now let's say you fast forward and now you've got a company that's got say 100 employees, right?You've got like five finance people, right?
In those cases, right, you can actually start to focus on a little bit more of automation, but then you're probably more of like a US centric team, right?
Because you're still don't have necessarily the capacity to go out to say, like India and create new registrations for headcount and be able to build that entire organization out there, right?
And in these cases, though, even if you're just simply using like QuickBooks, Right.
Books online has a lot of like functionality that's built in right where you can actually automate and repeat and billing and AP and really what you're doing is you're fundamentally building all the processes right in those cases.Right.
But then let's say you fast forward and I have a thousand employees right at a company and now what you're doing is you're starting to leverage.You've got a lot of volume to be able to support that kind of a company.Right.
And ultimately when that happens you're again it's always going to be based on you know What is the, what is like the true cost?Because anytime you put in a system for automation, in some ways you'll be locked into a process, right?
Because you probably need IT to integrate it.You need to configure it.You need to pay professional services to do all of that.
So the bent that, that when you're implementing these softwares and locking it in, what you want to do is you want to evaluate what is our future state plan to be, right?
The best thing that companies can do is make sure they have a proper roadmap as to what their infrastructure is going to be.
Because if you just start picking and choosing software, because it automates this and automates this, right, you'll still be left with a team that is doing manual process because they're stitching all the systems together.Right.
So it's really creating an architecture that they'll talk to each other. Because if you lead with Salesforce and your orders go through, then it could just create a disaster if your data isn't necessarily properly managed.
So you have to have proper controls in the process and validate.So to answer your question, do you pick an outsourced team?Or do you pick automation?Really, it's what is my future outlook going to be?Right?
Do I want something that's low cost where I can have three people in India do the same do the same value as this automation?Right?
And then I just need to support the process with manual work at a low cost location, then I might be like, let me pick India. Right.
But if I know that this process is one that I'm going to be, it's like the gold standard, let me go ahead and get it automated.It'll cost me maybe 20,000 professional fees.
And then I can have the three people in India focus on the exceptions to the automated process.Right.As opposed to individually doing the process.Right.Because I think a lot of people like to review things as opposed to doing like the
the day-to-day preparation as well, right?Nobody wants to just click journal entries all day, right?If you just have a GL account, right?
I think you can get a lot more value out of people by picking people that have a little bit better understanding of accounting.
That really resonates with me.I think when it comes down to my learnings, having been at Brex almost like six years, this is my first job out of Big Four working in industry.It's when we have made decisions
It, the ones that we made that went really well were those situations where, okay, we are automating this because this is a process that will call it stand the test of time or at least five to 10 years. Right.
And that's something where, because I knew the process wasn't going to change, there wasn't going to be as much configuration management and having a dynamic configuration going forward, et cetera.
But there were, there have been situations where, okay, let's automate this.And then Brexit was a startup and still operates like a startup for many things.
And then we changed something around and I'm like, okay, now it's actually more painful sometimes to manage that automation and reconfigure it, given the process changes that we went through as a company.
If that makes any sense, I'm not sure.Yeah, it does.Yeah, that's one thing that's operational baggage that companies can carry forward, right?And, and in some ways, it's keeping up on each and every one of those particular transactions, right?
Because then if, like, for example, if you look at if you look at your payroll systems, right, those are the ones that people don't necessarily want to
change that much because paying people is so paramount and important, right, to the success of the company, right?
And obviously there needs to be cash available for that process and there needs to be, right, as your funding, right, each and every one of the people and there's so many, there's so much regulation over that, right, that, you know, you just can't fail in the process.
So when you think about being able to structure payroll, right, as a faster process, then it's how are you Do you have all your systems available for more direct payments that are going out to everybody?Are you processing check payments?
Who's your provider?Have you set it up?Are you looking at all of your benefit accruals?Sometimes on benefit accruals, people are looking at each and every invoice that comes on.But if you just applied a fringe rate, Right.
You might be able to get to the same conclusion.Right.And again, everything just needs to be fairly presented.Right.In all material respects.So ultimately, if you've done your homework, you should be able to get there.Right.
It just makes it a lot faster.
I think what you're talking about is that month end.Is there a way to simplify the estimate for that benefit accrual so you can get that part of month end close faster?
Because when the actuals come through, the idea is like if your estimate is close enough, you're not going to need to go back and change anything.Right.Because it's not going to be a material difference. That's right.Yeah.Okay.
One thing you just mentioned, like the regulation and all that, like you, I haven't operated in this environment yet, but you work at a public company.
And so I guess, tell me about the impact of potential controls reliance or like what you need to prove out to the auditor in that environment, or how is scaling at a public company different than being at a private company?
So I guess I would say at a private company, in many ways, you can, you can do whatever you can't do whatever you want, but it says you obviously have to still file taxes and you have tax returns and things, but you're not necessarily required to go down the rabbit hole of here.
can prove out every control process and prove out that all your financial reporting obligations will be met, right?Because there you're reporting to the SEC, you've got the PCAOB behind the auditors, right?
You've got a SOX framework you have to manage, all of your executives are signing off your financial statements. Right.So, so there's a lot more regulation that goes into an SEC process.Right.And SOX control, that would be paramount.
Obviously, one of the things that your external auditors are going to care about is going to be is the PCAOB and all the details they their review over their auditors is now affecting what public companies are having.
Fundamentally, it used to be that you report your financials to the SEC, but a lot of times you're dealing with an additional regulator now because And in those reviews, you need to make sure that your financials are not also called out.
So, you know, management is definitely spending a lot of time owning their controls and making sure that all those are executed.
And I think when you start putting good details into your work papers, like your SOX process and a recon that shows, here's the 10 steps that I go through.
You make sure you've got all your screenshots, make sure you've got all your details that are in there.It's supported, you've reconciled it.I think we mentioned bank cracks earlier, right?So you have a statement.
Is there any differences that are in there?And if so, you make sure that you get them booked to the general ledger and everything is then tied out at the end of the day.
The biggest factor is what's the full process that you have to go through to be able to make all that happen, right?Because fundamentally, you're going to have you're going to have a bank statement, right?
You're going to have your the things that you're entering into your GL.And just the concept, of course, is that the system is just a system you're putting in.What's there?A lot of times what people think is that I ran the report from the system, so
that's the gospel, right?But it's not actually, it's not actually the case, right?Because the goal is, right, it's based on contracts, it's based on funds flow, right?
The auditors don't really care what the system says, they want to know that it's actually contractually valid obligations, and that the cash was remitted for those details.
So when you actually go into it, making sure that SOX is there as a management representation, that everything was properly executed. Right.And there, the auditors are there to check your work, like a teacher who checks your homework.Right.
It's, did you get all the answers?Right.And if you didn't get all the answers, right. then you then that's the framework that you're working with.Right.
It's really just putting the onus on yourselves to make sure that you've got the answer right first and foremost.Right.If you don't, that's where you run into trouble.But ultimately, it's for each and every control that's there.
If you're going to shift something, right, you need to look at that.So I'll give you an example.Right.So let's just say that before you were doing a manual effects upload process.Right.And as of September 30th,
I always recommend doing it after quarter end, because if you do something before quarter end, then it just creates more issues.So if you do, say, on October 5th, you go ahead and you input an FX process that's automated.
One of the things that'll probably convert instead of a manual control where you're reconciling all of these details, it'll then probably be more of an IT application control.
And in those elements, then it's generally like you test it once a year as opposed to maybe every month that you're dealing with FX rates as an example.Right.
And instead of that, then you get comfortable that those components are there and then you get efficiency over your controls as well.
That teacher example really resonates with me because getting the audit, actually for me, this is my experience as an auditor, especially in the later years of my career at the firm, and also my experience being audited, what ends up happening is the teacher is checking your homework and the teacher is checking the answer, but they're also checking your work.
Like when you do a math problem, you have to prove out the math problem.Like my daughter is learning algebra right now and she has to do the whole formula simplification and do row by row before she gets to X equals what.
And that, that is one of the more important things that like auditors look out for when they do the, in my, from my experience to work on a public company.My question back to you.
By having that extra requirement to show the work, the document, the evidence that you followed a certain process, that you didn't just get to the answer, so to speak, how much of that is added to the head counsel, so to speak, or the resource requirement for you as a public company?
It's definitely an adder, right?And the cost benefit is always what the real fundamental process is.
And we look at industry benchmarks to see what makes the most sense for each and every control that's out there to be able to prove that all this work has been completed. it's hard to put a specific number on it, right?
Because it's just the efficiency of the controls that you have out there.But what I would say is probably adds maybe 10 to 20% additional time in a process, right?For just being able to make sure that everything is properly documented, right?
It shouldn't be a huge burden that somebody spending double the time just because they're taking a screenshot from a report they ran, right?Just use the snipping tool done in five seconds, and you just add it in.
The biggest factor is more the training of it, more the review of it, right?You want your leaders to know what the right answer is.
So, cause that's, I think that's really the disparity having come from industry and learning what is the right answer, right?It's when you're a junior accountant, you don't really know what the right answer is.You've been trained. Right.
You know what people have told you to do.But to be honest, you really don't know what the right answer is.Right.So you're relying on people to tell you that.And really, the auditors know the right answer.
They just don't really know how the soup is made.So to speak.Right.
You know what?They know they're the folks that come to the restaurant and do the tasting menu, but they don't know how it's all made.Right.
They're the food critic, etc.
Makes sense.Right.Yeah, you don't want too many cooks in the kitchen.But at the end of the day, right, you want all of your team to know.
So you want your controllers, your chief accounting officers, your directors, your senior managers, you need all of them to know what the right answer is.
So that way, when you're delivering it to the auditors, really what they're doing is that they're just doing some basic checks, right?And I think that's where you start getting the leverage of that.
And if not, like for a smaller company, you probably get your value out of checking with your accountants and professional service providers.And at a larger company, like billion dollar companies, that's where the accounting team can hold their salt.
Because one of the things is, I found that in all my experience, you'll have a multitude of different accountants on your team as well.
Some are like the steady eddies, like they'll be happy doing the same thing over and over for the next 20 years, right?
But then I think really what makes optimal accounting teams and the ones who actually can drive change is going to be the ones that you really have somebody who's really cares, right?Finance is a helping organization.
It's not somebody who just like tells you no or can't have a PO open because they're trying to like manage the spend.I think really what it is, it's optimizing the business for financial return.
And it's just making sure that in accounting, right, are you getting your bills paid?What's your DSO?What's your DPO?What's your, right, what's your cash collection cycle?It's how are you managing all the working capital.
So when you have finance folks, I say finance loosely, because it's more of an accounting focus.But When you have really strong accountants, they can help you see these gaps and then be able to help close on those particular elements.
And so getting all those ideas from the team is, I think, another element.Right.So creating roundtables where the team feels comfortable to voice what they're seeing.Right.
And then the people actually get the information because I think information risk is another area that makes it tough to optimize and streamline.
We have a lot of folks in the audience that are working at pre-IPO companies, that's the bread and butter customer set for Brex.
If you were talking to someone who is working at pre-IPO, they're thinking about doing that in the next couple of years or three years, what are the things you would tell that person to focus on now, knowing that this is a possibility during that timeframe?
Ideally, you're going to have financials that are, you know, sorted for a period of three years.I would first look at what are your reporting obligations going to be, right?Get yourself familiar with what 10 Ks and 10 Qs look like, right?
Ultimately, that'll be the benchmark of what you're reporting on. and looking at those financials and individual line items that that you need to look at.Right.Like not every single line item in the P&L needs to be called out.Right.
Not every line item in the balance sheet needs to be called out.Right.If you look at the SX rules within the SEC.Right.It's very specific, whether it's 10 percent or 5 percent.Right.
The rules that are related to that, if you understand that, because and then you're going to have share registration statements, which is S1, S8, et cetera.There's S3, S4 and those. types of things.
But every share registration that you're making, right, is naturally going to have an impact on, you know, the recording that you have, and, you know, the obligations and the legal structure surrounding that exercise.
But realistically, it's, you know, do you have a proper control environment in place such that you once you go, you'll be there, right?Because there's different levels that you have to consider as well.Are you an emerging growth company?
Are you a smaller reporting company?Are you a large accelerated filer? Are you an accelerated filer?There's different rules that you have to follow for each and every one of those buckets.You'll check on the face of the financial.
So if you look at that, then you just work backwards, right?Because then you'll put you into 404B, which is SOX.And then there's also 404A, which is lighter SOX as well.Just refer to it as do your homework and research.
But naturally, if you create a SOX framework that delivers on all of those key controls, which are ones that have an impact to the financial statements, as well as key reports, which are the things that support those financial results.
Ultimately, I think those are going to be like your key elements.Other than that, make sure that you've got your investors lined up so they'll be ready to fund you and maybe your stock takes off.
For the audience, just to refresh ourselves on the definitions of some things that Eric just said.When you're a large accelerated filer, you're like market cap is really large.
I think it's like over a billion dollars, let's say, and you have earlier filing requirements for your 10K and 10Q.I believe your 10K is like 60 days. And then your 10Q is 40 days.
And you actually have to have SOX, like a SOX opinion specifically in your 10K report.
But if you are a emerging growth company within the first five years, like if you meet the definition for that, or if you meet the definition for a smaller reporting company, my understanding is like the requirements are a lot, not a lot, but like they are
less strict.You may have 90 days to follow your 10-K and 45 days to follow your 10-Q.And I think even on the SOX side, there's not really a full SOX reporting requirement in that stage, right?
Right.And just do your homework and work with your legal team and your accountants, and they'll make sure that you can figure it out.But ultimately, that's the concept, right at the end of the day.
So it's just preparing, it's preparing your yourself to be ready.So when you go to your first audits, that you should be there.
But naturally, many Series B companies are already starting to look at audited financials and Series C companies are they're looking at audit audited financials, maybe a Series B isn't there yet.
But Series C, I would imagine that they're already being expected from from these large, basically from the investors backing them that they would require more of those financials.So it should be.So if you're in a Series A, probably don't require it.
If you're in a Series B, they might start asking you about it.In a Series C, I would almost expect you and then every later round would have that.So just as long as you've got all of the right protocol in place to be able to manage that,
I think you should be fine.The biggest element is that management owns the control. in all of that framework and the reporting, right?The auditors don't own it, right?They're not giving you an opinion that you did your homework right.
Just to finish off this segment, one of the things that I took with me, having been in audit for so long, now that we do have controlled discussions with our auditor, I'm able to explain to them, this is the actual operational reason why this is structured this way.
like I understand your observation, but even if I applied this, the level of accuracy or additional accuracy I would get is not material, but it's hugely burdensome on my team to accomplish, if that makes any sense.
So I'm able to like better have those kinds of like business discussions to some extent with the auditors.And that's when I push back when like the incremental benefit or accuracy Sure, it's there.
Will it change how we operate the business or will it even change like how any stakeholder who reads the financials will view the company?
If the answer is clearly no, then that's when I definitely push back because that's like time wasted for my team.
Yeah, absolutely.Right.And that's all goes into the scoping.Right.So just make sure you have a good handle on the scoping requirements as you go through it.
And to the point of scaling businesses, right, it's really what are the most material line items that you're going to be having in your financials and what's high risk versus what's low risk and thinking through each of those components.
Because if you could be wasting a lot of time on low risk areas that are repeatable and high tech driven,
as opposed to high risk manual review areas where you should be focusing the majority of your attention on because that's also where the auditors are going to be focusing the most attention.That's where they should be focusing on.
Indeed.Sometimes there's a focus on the low risk areas for whatever reason, but that's where they should be focusing on for sure. We close off each of our episodes with a segment called finance leaders are fun too.
And I'm not sure if you came prepared with any fun accounting stories or accounting jokes, but curious if you have any.
Absolutely.Yeah.I don't, I'm a fan of dad jokes.Why did the accountant break up with the calculator?Why?Because she felt they just weren't adding up anymore. Oh boy.It doesn't matter whether we laugh as long as everybody's laughing with us or at us.
They're all getting a laugh out of it.
I'm having a laugh.So I for one enjoyed that very much.Eric, thank you very much for being on the show.
We really appreciate your insights, especially on the public company readiness and just thinking about how to create your processes for greater success on the accounting team.
Absolutely.Yeah.And thanks for having me on.Appreciate being here.
Thanks for tuning in to Controllers Classified, presented by Brex.Brex is an AI-powered spend platform with global corporate cards, expense management, reimbursements, and travel.
Visit Brex.com and follow Brex on social to see how they can take your accounting game and your company to new heights.
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