Scott Franchini joins the episode to discuss his career journey and the growth of RedHammer from Hawaii to Arizona. He shares insights on managing outsourced teams and addressing client concerns about outsourcing. Scott highlights the use of Predictive Index in hiring and performance assessments, along with the importance of performance feedback and construction accounting processes. The conversation covers common mistakes in construction accounting, including the segregation of duties. Scott also discusses expanding into new markets and adjusting sales approaches.
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(00:00):
What what are you having issues with today?
What are you not able to get across the line?
You know, how can we help you?
And I started to focus on the problemstatement.
I started to focus on what is going to be thatthing that is going to I mean, you're you're
I'm talking to you for a reason.
Right?
You're you're you're contacting us, and you'retrying to fulfill a need.
(00:22):
What is that problem, and what can I do topotentially help you with the problem?
And the minute I started to focus on theproblems and the emotional aspects of stuff
that built trust building trust, then we canstart to talk about how we can try to build a
solution for what that is versus me trying tosell you some big thing when maybe all you need
(00:45):
is this sort of sliver.
And so I I really started in to focus on sortof that relationship based sales.
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Just go to buildingscale.net/health.
Today's guest is Scott Francchini, partner ofRed Hammer, an outsourced accounting company
focused on the construction industry.
Scott brings over 25 years of experience infinancial software implementations and has
worked with both Deloitte and Microsoft.
(02:17):
Red Hammer excels in providing outsourcedaccounting services, system remediation and
implementations, and business processmanagement.
Their mission is to help construction companiesoptimize their financial systems and processes,
ensuring that their financials are bothaccurate and timely.
Their full suite of services encompasses everyaspect of financial management, including
(02:39):
accounts payable and receivable, job costings,payroll, cash management, and, month end close
and work in projects or WIP, and financialreporting.
They employ a fractional team based approach,allowing their clients to access their
specialized expertise when they need it withoutthe overhead of a full time staff.
And with all that said, Scott, welcome to theshow.
(03:01):
Thank you very much.
Yes.
This is very monies.
It's all the monies.
That's what I keep hearing, about you.
You like the monies or you just like to helpwith the monies.
That's that's where I think is reallyimportant.
We don't always go super, super deep on some ofthese things, and I think that, you're you're
gonna be able to really showcase, why money isimportant, which should be pretty obvious for
(03:23):
most business owners.
But, you can give that perspective.
But before we get into that, you tell me thereal story.
I said all these great things, but tell us,what's your origin story and how you got into
the accounting construction business.
Awesome.
So, went to Arizona State University, graduatedGo Devils.
Last year.
Go Devils 30 years ago.
So 30 years, well, I guess I didn't graduate.
(03:44):
I started 30 years ago.
And, well, actually, I was a supply chain majorand came out and, I ended up getting a position
over at, Deloitte under their solutionsdepartment.
And, within a week, I was immediately flown outto Secaucus, New Jersey and said, you're gonna
learn how to do this ERP software.
(04:05):
So went through 2 weeks of training, came back,they boot camped me and a client, and I just
had a knack for figuring things out.
It was, like a puzzle or a game to me.
And I spent a good, as a 5, five and a halfyears at Deloitte, quickly moving up.
I went from consultant to senior consultant tomanager.
(04:27):
I think I was the youngest manager in the inthe country by 25.
I ended up leaving Deloitte, and went andworked for Microsoft, for about a year, right
before they actually switched over to Dynamics.
Then I had this amazing opportunity to it wasan amazing risk too, to go out and do some
(04:48):
consulting on my own.
And so I did.
I did a leap of faith, went out there and didsome independent consulting, and that
eventually grew into a larger serviceintegration business where we went out and did
large scale Oracle JD Edwards implementationsfor manufacturing, distribution, and
construction companies.
So I have a breath of of experience when itcomes to not only companies with different
(05:14):
industries, but understanding really businessprocess management, redesign, data management.
So it brings us an entirely unique approach, asmy career ended up changing, in 2020.
So right before COVID, I was having aconversation with Neil who happened to be, my
(05:34):
buddy from Deloitte from 20 years, you know,earlier.
We had worked on several projects, in Hawaii,and, he had started a business in 2011 named
Red Hammer.
And he was at a point where, he was literallyon an island and wanted to expand its business.
And I was looking to do something different andactually take a lot of my applicable skills and
(05:54):
and what I've learned, and done for, you know,the past 20 at that point and apply it to a
business.
So, we came together and that's when we endedup launching, the Arizona practice here, which
essentially services, the main land of theUnited States while he is, handling Hawaii.
(06:15):
I love he was on an island by himself.
That's very, very, very, funny.
It is certainly.
So interesting.
So in Hawaii, you're in Arizona.
How how do you make that that connection work?
How do you how do you take what, Hawaii had andand drop it somewhere else?
Well, that was the amazing part about this.
So up to that point, you know, Neil and, one ofour other partners, Stephen Chang, had really
(06:42):
taken Red Hammer from this infancy stage of,you know, having 3 clients and had grown them
up to that point to have roughly, say, 50clients.
One of the key things that made them successfulin the process was they didn't just stop at
accounting.
It was very, very much a how do we grow thisbusiness?
(07:04):
How do we scale?
So, they did a lot of things around technology,in developing integrations and and some items
that help work with QuickBooks and Sage inorder to extract, information out, like
financial statements and work in progressreports, etcetera.
But one of the main things was that theystarted to look at outsourcing well before
(07:24):
people started looking at outsourcing.
And they worked together with, one of ourpartners, Connex Global, that's in the
Philippines, and from there, we started arelationship where we're able to, essentially
develop, a program around outsourcing,accountants.
And so that's been a a huge growth factor and abig factor in our success.
(07:49):
They had built in processes.
They had, a strategy around how to divvy up thework.
And unlike some of the traditional accountingcompanies where, you know, it's, hey, I'm gonna
give you a resource, or you wanna use, youknow, Robert Half, and I wanna I need an AP
person.
We took a different approach.
We took a team approach.
We said, hey, every client needs to have a teammade up of fractional people.
(08:12):
And we'll service that client through differentskill sets so that they can get the most out of
what we have.
So you'd ask, how do you translate that fromHawaii to Arizona?
Well, it wasn't as easy as we thought.
I think we had some challenges along the way,but we had a backbone.
We had a structure.
We had a vehicle in order to allow us to dothat.
(08:35):
We also brought out one of their key managers,to help me grow the business here in Arizona
and establish those same principles.
So we had a we had a a great blueprint, butwith COVID happening and or we were just post
COVID, we had to do some shifting, and we hadto modify, the way we did things, ultimately,
(08:58):
which benefited the entire organization as aresult of it.
So when you talked about the Philippines andhaving, you know, resources there, that's you
know, this is now much more comp like, this isa thing that we we see kind of across the
board, but you were doing this before that.
Mhmm.
That still begs the question, how does onemanage, somebody else on the other side of the
(09:19):
world?
Like, that's Great question.
Still goes Not easy.
To be true.
It's it's not easy.
And there were a lot of there were a lot offailures initially.
And what it came down to is a handful ofthings.
Number 1, we created defined roles.
In my opinion, we invented the roles that areoftentimes now used, for outsourced,
accounting.
(09:41):
And so we were very definitive in saying, thisperson will do this, this person will do this,
and this person will do this, relative totheir, you know, their their job
responsibilities.
We created levels of accountability, withinthem.
So if we have one accountant that's working onexecuting a wallpaper doing reconciliations, we
have peer review of another accountant that isessentially checking that work.
(10:04):
We embedded layers of leadership at all levels.
Everything from the top down to positionleaders, that could serve as leads to the team
in order to keep continuity and ensure thatpeople are communicating and that they're
working collectively together.
So, really, the management of it and and andlayering that in was an enormous piece of
(10:28):
getting this this machine to work.
People tell me all the time, like, hey.
We try to, you know, outsource, you know, acouple accountants, and we we just couldn't get
them to to do what we wanted them to do.
The other side of it is we go we put themthrough a rigorous training program.
You know, they're not only learning I mean,they all have a baseline of accounting.
(10:48):
Right?
But they have to learn construction principles.
Construction principles are not easy.
Job costing is not easy.
They have to learn about software.
They have to learn about the differentplatforms and so forth.
So we put them through a rigorous trainingprocess to bring them up to speed, to
understand the things to support our business.
So that's how we've done it.
(11:08):
Alright.
So talk to me a little bit about do they haveno.
Did clients have concerns about actualoutsourcing?
Like, did you talk about this in any way withclients?
Great question.
It's changed.
It was it was, when we first came out of COVID,when there was less of maybe a dependency upon
it or, I guess, an acceptance of it, We got alot of questions.
(11:32):
And it wasn't necessarily, hey.
You know, do they know what's what they'redoing?
It was always a question of security, privacy,etcetera.
And so that is always a concern.
And, essentially, the way we reassure them iswe talk through how we operate.
(11:54):
We are always doing things on their softwareplatform.
All of our servers, everything that we have isall US based.
Things like bank codes and so forth go througha central person, such as myself or another,
person in the organization that's at amanagement level.
So we do a high level amount of, securityprotocols, and we monitor that.
(12:20):
Everybody goes through monthly securitytraining, but to me, that has been the way that
we've ultimately, solved it.
Even to the point where we've had to we'll pusheverything through a centralized, server that's
whitelisted, from an IP address perspective.
So they have confidence that the data is notnecessarily getting outside of of of our 2
(12:43):
systems.
Okay.
That's pretty technical for, for, you know,when we talk about security more than most non
technical owners, and partners would talkabout.
So, you know, when it comes to hiring people,you talked a little bit about there's
accounting and then there's constructionaccounting, right?
(13:04):
And, can you talk a little bit more about thechallenges around what it takes to actually
train someone and the difference in sort ofthat accounting?
The and give us even some stories or challengesand how you kinda came across this.
So so training and the accounting side, it ityou know, outside of, our controllers that we
(13:28):
hire that have a specific constructionexperience, it's not rare for us to hire
somebody based on skill set, and who they are.
My partner and I both come from a big four.
And the first thing you'll notice at all bigfour is everybody comes from different
backgrounds, different educational backgrounds.
(13:49):
They hire people that are competent, peoplethat are adaptable, people that have critical
thinking.
And we take we've taken those principles, andwe actually apply them very much to the way we
turn around and hire people.
If you hire people purely off skill set, youwill be disappointed, especially in our world
(14:11):
where we have so much customer interaction.
We've we've hired, for example, controllersthat have come, straight from the industry and
try to put them into a more consultive role.
It doesn't work.
It's easier to take somebody who has been maybea, that's worked for, say, a CPA that has had
(14:32):
construction clients and to have them adapt to,you know, our world.
Funny enough is one of the some of our biggestsuccesses, especially from the the US side, are
people that have worked in the serviceindustry.
We have people that have been bartenders andwaiters and, flight attendants that have this
(14:54):
educational background, and they were inaccounting, and then they left for whatever
reason, and they try to come back in.
And we're able to then embrace them becausethey're they're they they're hungry.
They wanna learn.
They have the communication skills, and we canactually get them, across and make them
extremely successful.
I mean, they make themselves extremelysuccessful because those are the kind of people
(15:16):
that we we we go out and we we seek.
Now the challenges with constructionaccounting, we have so much experience.
You know, we have have 70 people in theorganization.
We have, you know, roughly 20 that are are highlevel professionals that understand
construction accounting.
We go through a rigorous training program whenpeople come on board.
(15:39):
They not only learn about how to do theconstruction accounting and learn the basics,
but they also learn how to be consultive.
They learn how to provide service value.
They learn learn about deadlines and projectmanagement.
They learn about the fundamentals of gettingthings across the line.
(16:00):
We have training environments.
We have training material.
We provide, you know, a lot of our our ouronboarding is 1 on 1.
So for example, it's it's it's not always ourhighest level people that are are training our
our our lowest level people.
It's it's the person next to them, and it's theperson, you know, directly above them.
(16:21):
So there's a lot of shadowing, a lot ofstandard, you know, operating procedures that
we we instill.
But yes, it's it's it's not easy.
We've, and it's something that we historicallywere not great at and we've learned over time
that if we start to follow this program, we canreally get people up to speed and get them up
(16:41):
fairly quick.
It's definitely something that they have togrow into.
We talked a little bit about, hiring.
So why don't you talk a little bit about sortof philosophy around hiring and adaptability?
Sure.
So how do you figure out that, you know, that'sa key part of, you know, your hiring, you know,
what hiring looks like.
And then talk a little bit about also clientinteractions, right?
(17:05):
Because construction industry is very specialin how they interact.
They have zillion vendors, zillion partners.
Like, things can get lost.
Like, it can get very complicated very fast.
You've and the work in the whips, work inprogress, reporting, like, those those can be
(17:28):
quite taxing.
So talk about the, you know, when it comes tothe people that you're hiring, how do you test
for adaptability?
Yeah.
Absolutely.
So one of the first things that we do when wego out and we, hire somebody, obviously, we're
going in, we're looking at their resume and soforth, which, you know, tells you this much.
Right?
(17:48):
But the first thing we do is we actually pushthem through what we what's called the
predictive index.
And predictive index is a scientific methodthat they've, this company has adopted.
I think it's in a pretty sure it's an opensource one.
Other companies like Culture Index do the verysimilar thing, and they're essentially
personality tests.
And predictive index measures dominance,extroversion, patience, and formality.
(18:15):
And essentially, it'll score them, relative tothe standard deviation of of most people.
And, that tells you a lot.
So, by looking at the different scores and andagain, you don't have to sit there and look at
this from a raw data perspective.
They'll put people in the different categoriesand there's no wrong category.
People are who they are.
But the fundamental aspect of this is that,hey, since you were 12, 13 years old, you're
(18:41):
kind of who you are, and there's things thatyou learn and there's certain things you can
work on, but some of these things aren't reallygonna change.
You are who you are in that sense.
And so what we've done is we have a lot ofpeople.
You know, we have 70 people and we've hadpeople that have come and gone.
We've gone through, you know, we've sent everyrecruit through it.
(19:03):
So we have a ton a ton of data on, you know,who's successful, who is not successful.
And we've been able to triangulate that.
And so when we're looking at the, when somebodygoes out and takes one of these surveys, not
only are we looking at, you know, what theirpersonality type is, but we can then say, hey,
(19:24):
how does that look compared to the othercontrollers that we have or the other techs?
And what that process does, and this is one ofthe my favorite things about the predictive
index is that it gives you an interviewquestion list.
And so what it does is it says, hey, thisperson is, you know, x, y, and z, and here are
the things that are really good about them.
(19:46):
Validate these.
You know, ask answer ask these questions andvalidate these sort of answers.
And the same thing is on, hey, this personshows, hey, they might be really, really
impatient.
Ask them this question and see how they answerit.
And so our process is is we have them take thetest, and then we go in and we do a panel
interview.
So they either come on-site or in cases ifthey're a remote person, you know, 2 or 3
(20:09):
people are asking the questions related tothat.
Other things that I look at, flexibility is abig thing, for me.
You know, we're in an environment where we haveclients that are remote, different time zones.
We're super flexible with people, and so weobviously want them to be super flexible as
well.
That's a big thing.
I believe that always wanting to learn and havea curiosity towards, continuous education is
(20:34):
such a quality that they have to have, thiseagerness to learn.
So we're always asking questions like, hey,tell me about what you like to read or tell me
what you're interested in or where do you wantyour career to go?
Or we'll ask a question, you know, what is,what's your ideal job?
You know, where do you what what would be thebest job in the entire world?
(20:56):
So we're looking for people that have somedynamic personality, but also are are are
critical thinkers.
We'll throw some of those oddball questions in,you know, that Google does.
And most of what we're trying to do there isto, hey, are they creative?
Are they, going in?
Is there some level of of critical thinking?
(21:16):
And you would be shocked at just the the lackof wanting to answer the question, or try to be
creative or funny.
I mean, that's ultimately what we what we'relooking for.
And then from, a gauge of we obviously, we gothrough accounting questions.
We ask them about their Excel skills.
I'll go a little deep on Excel.
I find people tend to give themselves, higherratings than they really are.
(21:41):
So we try to dig a little bit into.
And actually it's an integrity thing.
Because I'll ask people, because I'm I knowExcel very, very well, and I'll go, okay, tell
rank yourself on a 1 to 10 in Excel.
And it's really a 2 part question.
Number 1, I do wanna find out how good they arein Excel.
Number 2, I wanna figure out how honest theyare.
So I'm like, okay, why?
Tell me why you think you're a 9.
(22:01):
And then it starts to kind of break downbecause there's only certain things you know if
you're a 9.
So it it it kinda helps me understand, youknow, the person they are, if they're gonna
tell the truth.
I love the people that come in and says, oh,I'm only a 6 because I can do this, but I
really wanna do this.
So I'm looking for honesty.
I think that's a big thing.
It speaks towards the kind of person, that theyare.
(22:23):
But, yeah, I mean, those are some of themethods and and the the practices, you know,
that we do when we're going through our hiringprocess.
And and this is across the spectrum.
We we don't, discriminate across, you know,whether it's somebody in the Philippines or US.
We're always using the same structure.
So, I'm I'm a little curious.
We had talked in the pre interview a little bitabout a story, about how your interview process
(22:50):
helps find people, but it also helps kinda givegive a chance to people.
Yes.
Do you know the story that I'm talking aboutthat we talked about
in the previous interview?
Absolutely.
So Okay.
Yeah.
So we recently we recently had a gentleman comein, and, you know, it's a the younger
generation, and and that's fine.
I mean, there's everybody's different.
(23:12):
It's a more casual world.
Let's put it this way.
And then, so he he came in, to do theinterview, and did amazing.
I mean, you know, was met the skill set.
They felt he had a good personality, but he wasunderdressed, let's just say.
You know, jeans, tennis shoes.
And so they went back to the recruiter and theysaid, hey.
(23:35):
You know, hey.
We like this guy, but, you know, his appearancejust isn't what is needed, you know, to go
through this sort of interview.
You know, we interact with clients.
We are you know, people are going on-site.
There's a professional aspect you know, to whatwe do.
And they invited him back for a secondinterview.
The the recruiter actually relayed thatinformation to him.
(23:57):
Comes back for the second interview, jeans andt shirt.
So there's certain things you can't change inpeople, and and and that is a good example of
just if they can't adapt to just straight upfeedback, then that becomes a problem.
And I'll I'll tell you, in my career in mycareer, one of the best qualities, one of the
(24:21):
number one qualities in people is your ability,no matter who you are, is to take feedback from
other people.
And, it it tells you about their character andtheir ability to be vulnerable and to
essentially look at things from multipleperspectives.
(24:42):
I mean, that's where growth comes from.
It doesn't come from from people on the topalways, you know, telling you that.
It come it comes from all sides, and so I findthat, you know, whether you whether you agree
with it or not, we're not talking about thatnecessarily, but but listening to people and
being able to fold that into something is, Ithink, is extremely important.
(25:06):
So, you know, we'd go through, you know, notonly are we hiring people, obviously, we're
bringing people in the organization, but we gothrough performance assessments twice a year,
You know?
And it's self assessment, and then we'refollowing up with, you know, a a manager's
assessment.
And there's constant feedback.
We do monthly surveys, that we're going in andwe're validating, you know, the work that
(25:29):
people are doing.
We're always constantly giving feedback.
And I think that's an extremely importantthing.
And people who don't like that feedback, theydon't last very long.
So predictive index.
I wanna I wanna just narrow in on that for asecond, Payton.
Because it's different from Disc.
Right?
It's different from a lot of the other it'sdefinitely closer to Culture Index.
(25:50):
Yeah.
They're very
so from can you talk a little bit about, let'ssay, you know, maybe where you figured out that
there's certain personality types that mightnot work out, right, at least in the type of
culture, you know, in the type of company thatyou are Sure.
Where it didn't work out.
And then after that, you're like, okay, thisprofile just we can't have that or at least in
(26:15):
this role.
Sure.
So the measurement, when they start to look atany one of the scales, like, for example,
dominance, they always start with, you know, 0,and then they measure out in standard
deviations to how extreme somebody is, k, ateach one of the a, b, c, and d.
(26:36):
Then what they do is they layer in whatever thepattern is.
So for an example, if you're you're going for,like, in a high, you know, a and then you're a
low b and then you're even a low c and then yougo over to a high d, that pattern represents a
a personality type.
Right?
But then within that personality type, it couldbe along the lines of a standard deviation or
(27:02):
it could be extreme.
K?
Good example.
I'm a captain.
My wife is a captain.
I'm an extreme captain.
I'm I'm sitting on standard deviations of of,like, of of 2 in almost everything.
My wife is is closer.
So those extremes are are somewhat importantjust as much as the pattern.
(27:27):
So the thing that we focus on the most is theis the pattern, the pattern of behavior.
So for an example, when we look at ourcontrollers, we want them to tend to be a
little bit on really kinda shrunk in themiddle.
And, we want them to have a, an ability tomanage people.
(27:47):
Because you don't want somebody that isabsolutely, you know, just submissive and and
and and is is almost in the sense of overlydemocratic.
Just fold just fold.
They'll never get anything done.
Yeah.
They can't make decisions.
And so
So essentially if so essentially if someone ifthey Yeah.
Give feedback back like, like if they were in amanagement position and an employee said, well,
(28:11):
that's not a good idea.
They'd be like, oh, okay.
And and not even question why.
Oh, yeah.
A 100%.
It's and and it it's crazy.
So, you know, another you know, if you look atthe at the b, it's, the, the the socialization.
Right?
We hired a a great controller once, and she wasa almost a 3 deviation on when it came to her
(28:37):
ability to become an extrovert.
Right?
Oh, man.
That didn't work.
Because every time she'd get on a call with aclient, all she wanted to do was talk.
And we're dealing with accountants.
Accountants don't necessarily or aren't themost social people, and work wasn't getting
done in that sense.
And and and and everything was meant asrelationship building, and we we encourage
(28:57):
that.
But it it shows how much it matters.
Honestly, a lot of the times, it's it's about,oh god.
This this world's not gonna work.
This person's type of personality is probablynot gonna work in this dynamic.
But the good thing is is we do have differentpositions, and we have, you know, we know where
(29:18):
people like, for example, our our ouraccounting techs, which are really responsible
for our data entry.
Precision.
We want that precision.
We want them to be able to be precise.
That is a very high quality of that individual.
And so those are things that we try to to focuson.
If they're not, if they're loosey you know,goosey and they're all the way to the left on,
(29:43):
the, the formality is what they call it, thenthen that becomes a problem.
But when we're talking about maybe ourconsultants or even our our controllers, hey,
that format, that preciseness doesn'tnecessarily you don't want you don't want
somebody overly precise there, because we don'twant them chasing, you know, $2, you know, in
in a in a $100,000 bank reconciliation becausethey just have to get it.
(30:05):
They have to get it right.
No.
There's better ways to do it and there'sthere's more efficient ways to do it.
So we want them to be thinking, hey, I don'twanna be as I don't need to be as precise.
I need to be as good as I can, and then we canmake some adjustments in order to get it right.
And that's the kind of that's the differencebetween somebody who is something highly
technical versus somebody who ultimately has tomanage and get things across the line, get
(30:28):
things done.
I liked I liked the deep dive into thepersonalities.
I wanna talk a little bit about process here.
Yeah.
What is not understood in constructionaccounting?
I know that's a loaded question, but
Well, let's break it down.
I'm gonna break it down into 2 things.
I'm gonna break it down into the functionalaspect of it, and then I'll I'll break down the
(30:50):
let's we'll talk the process management side ofthings.
From a functional perspective, one of thebiggest failure points we see, companies go
through, when trying to hire, somebody, whetherit be a staff accountant or or even a
controller, is a lack of understanding of jobcosting.
(31:11):
Not understanding the fundamentals of whatmakes up a job, what goes into the job, and how
a job is measured.
I came from a deep background in manufacturingand a lot of cost accounting.
I look at construction jobs as larger versionsof that.
And everything needs to be, tracked at a, adetailed level.
(31:34):
And so oftentimes, if you don't understandthose sort of fundamentals, which then play
into much larger pictures such as, you know,revenue recognition, which is a very, very
important thing, or play into, you know, youryour ultimate WIP adjustments for over under,
which are critical in, the measurement of thebusiness and things that, the banks and the
(31:57):
bonding companies are gonna look at.
So at the the the most raw rudimentary level,they have to understand the fundamentals of job
costing and what makes that up.
Understand, hey, this is a contract.
These are change orders.
Here's my budget.
Here are my costs and here's how my costs arefunneling in.
And then there's a whole other layer when youstart to get into the true costing side, and
(32:21):
and the fundamentals of of how you do thatrelative to a chart of accounts versus how you
would handle that, you know, through a projectmanagement system where you're using things
like cost codes and so forth.
So there's just if if they don't have thisfundamental experience, and even taking even a
step further, maybe even with the software, Ifind that less The software's usually not a big
(32:45):
deal, but you have to have that baseline.
If they don't understand that, then they're notgonna under If they don't understand the
smallest, most, you know, detailed part of it,they'll never understand the big picture
because all those things are just componentsthat build up into, a much larger, item.
And then from a process perspective, oh, I lookat construction accounting construction
(33:09):
accounting in its best in its in its best is aa 360.
And and I look at it like this.
Yeah.
But somebody who goes out that estimates, thatestimate turns into a budget.
From that budget, you're determining what yourcontract is.
Those then flow in and become the baseline foryour your financials.
(33:32):
Right?
So you have, obviously, your schedule valuesand how your contract, your schedule values on
how you're gonna charge.
You have your cost on how you're going tomeasure, but then you also have your project
management system, which needs to worktogether.
And this is often an area where there are a lotof problems.
You know, there's a lot of, let's just say,aging ERP systems.
(33:54):
I don't know if I'd call them ERP, you know, inthe construction world.
And then we have some leading, you know,project management companies out there where,
you know, we've got the Procorers and buildertrends and so forth.
But that project management and the measurementof those, though, of the costs have to come
together.
Right?
There has to be some control.
But then it's the feedback of that.
(34:16):
Right?
It's it's how am I doing cost wise against mybudget?
You know, am I on track?
Am I off track?
And why?
Am I am I, am I why are my material costs allof a sudden, you know, so high?
Well, maybe my material costs are high becauseI I underestimated them or maybe it's because
(34:40):
there's, a rise on the commodity cost and and Ineed to analyze that.
But at the end of the day, going back to the360, is you're doing all this and you wanna
analyze all this so that you can then tightenup your estimates.
It's, you you want to be able to extract andgain the most profitability.
And so oftentimes, what we're doing is we'renot just doing the work, we're trying to teach
(35:04):
them the fundamentals of, cost accounting andand job costing.
And some of that, like, for example, we'll sitdown with our clients and we'll have monthly
web meetings.
And what we're doing is we're going throughtheir particular projects.
We're saying, hey, are all the change ordersin?
Has everything been accounted for on both thecontract side as well as the budget side?
(35:26):
Okay.
How do you feel about where we're at relativeto, the the progress?
Where are we on a percent complete?
Oh, well, you know, there's no way that youthat's just 40%.
We're actually 50%.
Well, why is it 50%?
Well, you know, this last month, you know, wewere gonna, you know, in the budget, we were
gonna go rent this, you know, boom and it wasgonna cost us $50 and, you know, it it it
(35:49):
didn't.
We have, we're using one of our own fixedassets.
Okay.
So let's account for that.
And so that's where they have to go in andstart to make some of those adjustments to
their budget so they can start to tighten thatup.
We really just want to get them to look atthis.
So on a, you know, on on a frequent basis, youcan't you can't do a WIP every every week.
(36:09):
But a month is is pretty good if you're in abusiness where you have jobs that are extending
over, you know, 30 to 60 days, and you have alot of moving parts in your and and and maybe
resources that are being consumed acrossmultiple projects.
But it's very much, a learning experience inteaching them about the whole cyclical aspect
of of of of job costing and how, if you do itright, how it can really, really benefit you,
(36:36):
in every area of your business.
So, you know, because you're you're helping,construction companies, in some fractional
sense or becoming their kind of entireaccounting department, got any horror stories
to share?
I'm sure you, I'm sure you have.
And maybe, maybe, and maybe even some warningsto people, that are in the construction of, if
(36:57):
you are doing this or if you, if you have donethis, you may wanna reconsider.
And maybe even why, if it's not obvious.
So Maybe
in a Chicago story.
I'm trying to think about this in the contextof I can talk about clients that This is a
tough one because I'm trying to put this in thecontext
(37:17):
of,
without, you know
No names are gonna be given.
Yeah.
No names are gonna be given.
I I I think in general, it is not uncommon forus to go in it's actually more it is common.
I'm gonna put it this way.
It is common for us to go into organizationswho believe they have everything right, and
(37:38):
that they've been doing things the way thatthey should be doing for an extended period of
time.
And we go in, and we look under the hood, andit's, just a fundamental, disaster.
Their idea of what is reconciled is is is not.
And so more times than not, we're having to goback, to the previous point of where their
(38:06):
taxes were previously filed, and we're havingto start over at that point.
And and and and not in all cases.
When I say start over, it doesn't necessarilymean we're reentering stuff, but we're having
to restart the reconciliations and start to gothrough that process to ensure everything is
accounted for and that everything iseffectively, in the right spot.
(38:29):
Some cases, you can't go back and just do jobcosting for everything.
Sometimes you have to create a a centralizedproject, and you throw everything in it, and
you call it a day.
I mean, there's just some things you you justyou just simply cannot do.
I find that the worst clients that we've had,when you have an owner who has a perception of
(38:51):
what's going on, and then you have an employeewho, either, a, has a perception, their own
perception of what's going on, or, b, they'rejust fundamentally do not know what they're
doing.
And that can oftentimes be contentious.
You know, one of the things that we really,really do an amazing job at is is becoming a
(39:11):
part of the team.
We are not one of those fly in once a month,fly out.
We are interacting with our customers on adaily, weekly, monthly, quarterly basis
depending on what we're doing.
There's constant email communication.
We're we're we're moving documents, you know,behind the scenes, you know, using, you know,
(39:33):
secure sites where there's there's just a lotof commute or texting.
You know, there's a lot of communication goingon.
And, oftentimes, when, you know, that thatdoesn't take place or, you know, we had a
client, this last year who was just sabotaging,sabotaging absolutely everything, and
(39:57):
finding examples?
Like, can you give examples of what what doessabotage look like?
It's big.
And and and fraud is a big one.
Sabotaging and fraud.
Pure fraud in in the construction industry.
That that that's one thing that, I can say isso prevalent because of complexities with the,
amount of data, that's moving across and thelot of multiple vendors.
(40:19):
But to the point where she was literally goingin and modifying PTO policies on people,
including herself, paying herself extra money,through different payroll runs.
We believe there could be, some potential fraudwhere she was, set somebody set herself up as a
(40:39):
vendor.
And that's it's crazy on the construction.
It's it's so prevalent.
It's it's not about if it's gonna happen.
It's about when.
And so that's actually a good thing to pointout.
One of our policies is we don't do treasury.
So, one of our ways that we protect ourselvesand our company organizationally is we're not
(41:00):
we're not writing checks.
We're not transferring money out.
We're not paying bills.
Those are things that we reserve to the clientbecause we believe that they need to be in
charge of the the treasury.
When we get access to their banks, we will notif they have treasury functions, we will not
interact with it.
And we want read only.
It's very explicit.
We want read only access to this.
(41:22):
Now if they have payment portals and they havetheir credit cards and they manage that, we're
perfectly good with that.
Right?
But it's it's, to me, the fraudulent aspect ofit, and and just being aware of that.
And here's the other great thing about having athird party is we can prevent a lot of that, or
(41:42):
we see that that that stuff going on, and we'reable to actually really serve as a third party,
that allows that natural segregation of duties.
I mean, that's another that's another great onetoo.
Somebody who is buying things, paying things,and has access to checks and the banks.
(42:04):
That's a no no.
You don't want the same person doing thosefunctions.
That is the most it's the best example of of apure segregation of duty because somebody can
go set themselves up as a vendor.
They can go create an invoice.
They can go pay themselves and nobody is gonnaknow.
And they could do it very incrementally.
So it's to me, having that sort of segregationof duties and making sure that there's a level
(42:28):
of accountability and that there's all eyes oneverything really going, you know, in and out
of the business.
I mean, even just, you know, we have somecustomers where we're going in.
And a lot of times just because they it's it'sa they're trying to manage their their their
cash.
We're going in.
We're reviewing.
We'll take a 30 minute meeting once a week oronce a month, and it's we're going through AP.
(42:50):
And we're making decisions.
And there's, you know, 3 or 4 people in thecall, and and they're saying, hey, what is
that?
It's amazing what we end up discovering.
You know, and, there there are multiple timeswhere somebody signed up for some subscription
and, you know, a year later it pops up and theydon't need it.
Okay.
Well, let's take care of that.
So going through that review and not justputting it on one person is kind of a key thing
(43:11):
too.
So I I guess a combination of those sort ofthings.
So fraud obviously comes in a lot of differentforms.
And what I'm hearing, keeping a separation ofduties, you either have to have a large enough
department to be able to keep that separationof duties or use a third party to be able to
essentially run the checks and balances
Correct.
Between internal and external.
(43:33):
Right?
You've done you've done it by simply sayingyou're not do dealing with any of the
countries, so no account transfers out.
Right?
Which is, I think, from a lot risk andliability perspective, I think that's a win win
for both for all parties involved.
Mhmm.
So let me I think we we got a good idea, atleast, on some of the on some of the accounting
(43:57):
aspects, around, you know, around theconstruction accounting.
Why don't we talk about you were in Hawaii orcompany started in Hawaii?
You're in Arizona?
I can almost guarantee there's gonna be atleast 1 or 2 problems that you encountered
almost immediately.
One of those is, do you have any relationshipswhen you started in Arizona?
(44:20):
And if let's start with that.
Do you have any relationships starting up inArizona?
You're saying so when we came in, like, what myrelationships with anybody when we opened up
the business?
Mhmm.
Nope.
Okay.
No.
That was
So so so if you didn't have any relationshipsto start, that's a really hard that's like
being a startup, starting from nothing.
So if you didn't have relationships, how do yougo from 0?
(44:42):
Right?
It's way easier when you have existingrelationships because that wheel just keeps
step by wheel keeps spinning.
I mean, when you're at 0, that's a lot ofweight to to move to get it going.
Oh, gosh.
It was so here's this is kinda this is twosided.
So we we did when we first started, we did havean, an additional partner who had who's they're
(45:06):
no longer, a partner with us anymore.
But, they we we were sharing a businessdevelopment person who is phenomenal and still,
a great friend and, a connection to thebusiness today.
Does a lot of other stuff, but he's phenomenalphenomenal person.
And he was able because he did have a lot ofthose relationships with, you know, banks and
(45:30):
insurance companies and so forth, but that wasonly one piece.
The the second part that was really, reallydifficult was there's the relationship side,
but you have to be able to go in and convincethem.
So you can meet them, but now you gotta go inand you've gotta convince these guys to go
convince their clients to go to you, and thatto me was the hardest part.
(45:57):
A, walking into a a brand new business, b, wehad to go and kind of develop our own marketing
collateral and and and and that in the sense,marketing collateral.
You know, in Hawaii, people know who Red Hammeris.
It's very relationship based, but they know whothey are.
(46:22):
When you're opening up to a new market, peoplewant to, oh, who are they?
I'm gonna go and jump on, you know, their theirwebsite.
I wanna go jump on their LinkedIn.
Oh, can you send me a 1 pager?
Oh, you know, what are your, you know, what'syour profit what's your business proposition?
I mean, all these sort of things that that thatdidn't exist because it was the way that they
(46:47):
sold out there is just it was justfundamentally different.
So we had to go and almost, like you said, astartup, we had to go and and and and and
almost build this stuff, not from scratch.
Obviously, we took all the great things and Butwe had to slowly sort of build up, all those,
all those things as well as a a sense ofconfidence so that when we're going out and
(47:11):
we're we're selling to our customers, you know,we're we're selling something that's for real.
I mean, that's that's the the worst thing youcan do is oversell something and under deliver.
Right?
And so we we had some initial success in,bringing on, on customers because we had the
avenues.
But, man, I I tell you, the sales, I think Iwas batting for, like, like, 100 for a better
(47:38):
part of a year.
I mean, literally one.
I was getting 1 out of 10.
I couldn't figure out why we weren'tresonating.
And our initial sales process involved me kindacoming in exec, and then I would have, one of
(47:58):
our controllers on the call, and it would be,you know, back forth.
I would say this, and then she would come inand kinda fill in the details.
And she's phenomenal and and great, but forsome reason, it just it didn't resonate.
And sadly, and and and I really do trulybelieve this.
I I go sadly, she was a young female, and I andI think that people looked at that poorly, and
(48:24):
they could not be more wrong about it and andand it it's insane to me.
But I I do think that that was was one of thereasons why some of these companies didn't come
on board.
I thought it was absolutely ridiculous.
But nonetheless, you know, as things started tomigrate, It was funny.
It was, I was going in every single call.
(48:46):
I'd create this PowerPoint presentation.
I'd pull their logo in, and I'd go through thissort of PowerPoint, and and it just it just
wasn't working.
And then it was one day I did not have time todo it.
And literally had no time to go in and do it,so I'm like, okay.
I'm just gonna get on this call.
And I sat there, and instead of sitting thereand me going out and saying, here's what Red
(49:09):
Hammer is.
Here's our timeline.
Here's what we do, and me talking for 15minutes about who we are, I just went and said,
hey.
What are your problems?
You know, what what are you having issues withtoday?
What are you not able to get across the line?
You know, how can we help you?
And I started to focus on the problemstatement.
(49:31):
I started to focus on what is going to be thatthing that is going to I mean, you're you're
I'm talking to you for a reason.
Right?
You're you're you're contacting us, so you'retrying to fulfill a need.
What is that problem, and what can I do topotentially help you with the problem?
And the minute I started to focus on theproblems and the emotional aspects of stuff
(49:53):
that build trust, building trust, then we canstart to talk about how we can try to build a
solution for what that is versus me trying tosell you some big thing when maybe all you need
is this sort of sliver.
And so I I really started in to focus on sortof that relationship based sales.
(50:15):
Funny part is 360, that's what they do inHawaii.
So we don't come in with this heavy, heavysales process.
I'm not gonna throw you a bunch of ofPowerPoints.
If you want a 1 pager, I'll send it to you.
But at the end of the day, I am going to comeinto a meeting, and I want to learn about what
your problems are, what you're dealing with,and how we can turn around and solve them.
(50:37):
And if we are not the right person to solvethem, I will turn around and tell you who is or
where you should go.
One of the biggest fundamental problems we seeall the time, and I hear this a lot, being
that, I am a member of, of EO Entrepreneur'sOrganization.
And I hear this all the time is I need a CFO.
(50:59):
I hear it all the time.
I need a CFO.
I need a CFO.
And I ask them, well, why do you need a CFO?
What what is the reasoning that you need a CFO?
Well, you know, my financials are are are 60days late, and, you know, I just really need
somebody to close the month, and, I needsomebody to help me with, you know, my cash
(51:19):
flow and and and there's nothing in there aboutstrategic purpose.
There's nothing in there about, oh, I need towork on the capitalization of my business, or I
need to handle some some debt, or I wanna goout there.
I wanna buy another company, or I wanna besold, or I wanna focus on strategic
(51:40):
forecasting.
It's usually they fall back on fundamentals.
And I always come back, you don't need a CFO.
You just need a controller.
You just need somebody who has good sense ofaccounting that can come to your organization
and get things straight.
So I just I I find it, I find it all just kindafascinating on the needs, and the
(52:05):
misconceptions.
So, you know, when we're going through thisprocess and we're selling, it's it really is.
It they have to be we they have to be a fit,and we have to be a fit.
It has to go both ways.
Anytime we've ever tried to sell something forrevenue, knowing that there could be a problem,
it has been a failure.
And, we're getting to the point where we justhave to start we have to say no.
(52:27):
We have to and and we have.
But, you know, it if it's not gonna work out,it's not gonna work out.
It's not worth the pain.
It's not worth the what you put on your people.
That's that's really where I get the theheartburn is what it does to the people.
So It sounds like they need Red Hammer, not aCFO.
Yes.
And if they need a CFO, I will recommend 1.
No.
Totally.
(52:50):
Yeah.
This is, this has been awesome.
Very intriguing in regards to the sales, like,being more relationship driven, not, going
through all the features.
You know, a lot of service companies, they getstuck in the features aspect in comparison to,
like, what's the result?
What's the outcome you're looking for?
And is it just for this thing?
(53:11):
Is it for everything?
And then kinda working the process that way, ona true relationship in comparison to, like,
here are the 38 things we could possibly do foryou.
So, that's been great, and, we're we're aboutout of time here.
So, I wanna kick off our last question here,which is, Scott, if you could go back 20 years,
(53:31):
what would you tell yourself?
Oh my gosh.
What would I tell myself 20 years ago?
Well, 20 years ago is definitely a differentperson, in the sense that it to me, the image
that you portray defines what sort or the way Iguess how do I put this?
(53:53):
The how you portray yourself is how people willperceive you relative to leadership.
And I'm a firm believer that you have to be arock.
And, and if you're going in and you'reproviding calm to a situation, oftentimes we
have, like I said, we have customers that arefreaking out for whatever reason or not.
(54:17):
The worst thing I can do is tell them that theyshould be freaking out.
That's the worst thing I can do.
It's about bringing calm to the situation, and,and if you do that, that helps allow them to
vent, build trust, and then know that you canguide them through that.
(54:38):
I think that, you know, I think early on in mycareer, I was a fire starter.
I was, you know, aggressive, young, workingthrough things, and, you know, I had my own
sort of motivation, but sometimes that's notgreat for the larger picture of things as it
can stir things up and create animosity and andso forth.
(55:00):
And, you know, I had a senior manager tell meonce at at Deloitte when I made a big deal out
of this.
I was like, you just gotta be The Rock.
Like, if you're the steady one, then everybodyelse below you will look to that and say, okay.
If he's calm, then we can remain calm.
And I and I just believe that from a trueleadership perspective.
At the same time, it's always good to know whenyou should invoke emotion or you should invoke
(55:24):
passion because I think that's also anothermotivating factor because if they know you to
be kind of this calm person, but then, whichI'm not necessarily, but if you're are a
certain way, and then all of a sudden, youextrude a different personality, then they can
start to look at, maybe the seriousness of of asituation.
(55:46):
So I think I'm not saying you have tonecessarily be calculated, but just be aware of
who you are and, and, you know, how people, youknow, perceive you in that in that line.
So that's that's what I would tell myselfeasily 20 years ago, 30 years ago.
I think I would have gained a lot of value outof that.
(56:07):
No.
That's good that's good advice.
If somebody wanted to get a hold of you, what'sthe best way for them to do that, Scott?
Obviously, they can go to our website,atredhammer.io.
My email is sfranchin@redhammer.io.
Those are are probably the 2 best methods.
(56:27):
Awesome.
Sounds great.
This has been fun.
Sorry, listeners, if there's a little bit of,different sounding, little Internet issues over
at the Nagle residence, today.
But, in any case, Scott, you've been fabulous.
Thank you so much for your time.
And to all our listeners, until next time.
Adios.
Adios.
(56:48):
Take care, guys.
Adios.
Thanks for listening to Building Scale.
To help us reach even more people, please sharethis episode with a friend, colleague, or on
social media.
Remember, the 3 pillars of scaling a businessare people, process, and technology.
And our mission is to help the AEC industryprotect itself by making technology easy.
(57:12):
So if you think your company's technologypillar could use some improvement, book a call
with us to see how we can help maximize your ITcybersecurity strategy.
What what are you having issues with today?
What are you not able to get across the line?
You know, how can we help you?
And I started to focus on the problemstatement.
I started to focus on what is going to be thatthing that is going to I mean, you're you're
I'm talking to you for a reason.
Right?
You're you're you're contacting us, and you'retrying to fulfill a need.
(00:22):
What is that problem, and what can I do topotentially help you with the problem?
And the minute I started to focus on theproblems and the emotional aspects of stuff
that built trust building trust, then we canstart to talk about how we can try to build a
solution for what that is versus me trying tosell you some big thing when maybe all you need
(00:45):
is this sort of sliver.
And so I I really started in to focus on sortof that relationship based sales.
Have you ever wondered how successfularchitecture, engineering, and construction
companies scale their business?
Or have you ever wanted guidance on how to getmore growth, wealth, and freedom from your AEC
(01:08):
company?
Well, then you're in luck.
Hi.
I'm Will Foratt.
And I'm Justin Nagel, and we're your podcasthosts.
We interview successful AEC business leaders tolearn how they use people, process, and
technology to scale their businesses.
So sit back and get ready to learn from theindustry's best.
This is building scale.
(01:32):
Hey, listeners.
It's Will here.
Our mission is to help the AC industry protectitself by making technology easy.
If you've ever listened to our show, then youknow that the 3 pillars of scaling a business
are people, process, and technology.
So if you suspect technology is your weak link,then book a call with us to see where we can
help maximize your company's IP cybersecuritystrategy.
(01:56):
Just go to buildingscale.net/health.
Today's guest is Scott Francchini, partner ofRed Hammer, an outsourced accounting company
focused on the construction industry.
Scott brings over 25 years of experience infinancial software implementations and has
worked with both Deloitte and Microsoft.
(02:17):
Red Hammer excels in providing outsourcedaccounting services, system remediation and
implementations, and business processmanagement.
Their mission is to help construction companiesoptimize their financial systems and processes,
ensuring that their financials are bothaccurate and timely.
Their full suite of services encompasses everyaspect of financial management, including
(02:39):
accounts payable and receivable, job costings,payroll, cash management, and, month end close
and work in projects or WIP, and financialreporting.
They employ a fractional team based approach,allowing their clients to access their
specialized expertise when they need it withoutthe overhead of a full time staff.
And with all that said, Scott, welcome to theshow.
(03:01):
Thank you very much.
Yes.
This is very monies.
It's all the monies.
That's what I keep hearing, about you.
You like the monies or you just like to helpwith the monies.
That's that's where I think is reallyimportant.
We don't always go super, super deep on some ofthese things, and I think that, you're you're
gonna be able to really showcase, why money isimportant, which should be pretty obvious for
(03:23):
most business owners.
But, you can give that perspective.
But before we get into that, you tell me thereal story.
I said all these great things, but tell us,what's your origin story and how you got into
the accounting construction business.
Awesome.
So, went to Arizona State University, graduatedGo Devils.
Last year.
Go Devils 30 years ago.
So 30 years, well, I guess I didn't graduate.
(03:44):
I started 30 years ago.
And, well, actually, I was a supply chain majorand came out and, I ended up getting a position
over at, Deloitte under their solutionsdepartment.
And, within a week, I was immediately flown outto Secaucus, New Jersey and said, you're gonna
learn how to do this ERP software.
(04:05):
So went through 2 weeks of training, came back,they boot camped me and a client, and I just
had a knack for figuring things out.
It was, like a puzzle or a game to me.
And I spent a good, as a 5, five and a halfyears at Deloitte, quickly moving up.
I went from consultant to senior consultant tomanager.
(04:27):
I think I was the youngest manager in the inthe country by 25.
I ended up leaving Deloitte, and went andworked for Microsoft, for about a year, right
before they actually switched over to Dynamics.
Then I had this amazing opportunity to it wasan amazing risk too, to go out and do some
(04:48):
consulting on my own.
And so I did.
I did a leap of faith, went out there and didsome independent consulting, and that
eventually grew into a larger serviceintegration business where we went out and did
large scale Oracle JD Edwards implementationsfor manufacturing, distribution, and
construction companies.
So I have a breath of of experience when itcomes to not only companies with different
(05:14):
industries, but understanding really businessprocess management, redesign, data management.
So it brings us an entirely unique approach, asmy career ended up changing, in 2020.
So right before COVID, I was having aconversation with Neil who happened to be, my
(05:34):
buddy from Deloitte from 20 years, you know,earlier.
We had worked on several projects, in Hawaii,and, he had started a business in 2011 named
Red Hammer.
And he was at a point where, he was literallyon an island and wanted to expand its business.
And I was looking to do something different andactually take a lot of my applicable skills and
(05:54):
and what I've learned, and done for, you know,the past 20 at that point and apply it to a
business.
So, we came together and that's when we endedup launching, the Arizona practice here, which
essentially services, the main land of theUnited States while he is, handling Hawaii.
(06:15):
I love he was on an island by himself.
That's very, very, very, funny.
It is certainly.
So interesting.
So in Hawaii, you're in Arizona.
How how do you make that that connection work?
How do you how do you take what, Hawaii had andand drop it somewhere else?
Well, that was the amazing part about this.
So up to that point, you know, Neil and, one ofour other partners, Stephen Chang, had really
(06:42):
taken Red Hammer from this infancy stage of,you know, having 3 clients and had grown them
up to that point to have roughly, say, 50clients.
One of the key things that made them successfulin the process was they didn't just stop at
accounting.
It was very, very much a how do we grow thisbusiness?
(07:04):
How do we scale?
So, they did a lot of things around technology,in developing integrations and and some items
that help work with QuickBooks and Sage inorder to extract, information out, like
financial statements and work in progressreports, etcetera.
But one of the main things was that theystarted to look at outsourcing well before
(07:24):
people started looking at outsourcing.
And they worked together with, one of ourpartners, Connex Global, that's in the
Philippines, and from there, we started arelationship where we're able to, essentially
develop, a program around outsourcing,accountants.
And so that's been a a huge growth factor and abig factor in our success.
(07:49):
They had built in processes.
They had, a strategy around how to divvy up thework.
And unlike some of the traditional accountingcompanies where, you know, it's, hey, I'm gonna
give you a resource, or you wanna use, youknow, Robert Half, and I wanna I need an AP
person.
We took a different approach.
We took a team approach.
We said, hey, every client needs to have a teammade up of fractional people.
(08:12):
And we'll service that client through differentskill sets so that they can get the most out of
what we have.
So you'd ask, how do you translate that fromHawaii to Arizona?
Well, it wasn't as easy as we thought.
I think we had some challenges along the way,but we had a backbone.
We had a structure.
We had a vehicle in order to allow us to dothat.
(08:35):
We also brought out one of their key managers,to help me grow the business here in Arizona
and establish those same principles.
So we had a we had a a great blueprint, butwith COVID happening and or we were just post
COVID, we had to do some shifting, and we hadto modify, the way we did things, ultimately,
(08:58):
which benefited the entire organization as aresult of it.
So when you talked about the Philippines andhaving, you know, resources there, that's you
know, this is now much more comp like, this isa thing that we we see kind of across the
board, but you were doing this before that.
Mhmm.
That still begs the question, how does onemanage, somebody else on the other side of the
(09:19):
world?
Like, that's Great question.
Still goes Not easy.
To be true.
It's it's not easy.
And there were a lot of there were a lot offailures initially.
And what it came down to is a handful ofthings.
Number 1, we created defined roles.
In my opinion, we invented the roles that areoftentimes now used, for outsourced,
accounting.
(09:41):
And so we were very definitive in saying, thisperson will do this, this person will do this,
and this person will do this, relative totheir, you know, their their job
responsibilities.
We created levels of accountability, withinthem.
So if we have one accountant that's working onexecuting a wallpaper doing reconciliations, we
have peer review of another accountant that isessentially checking that work.
(10:04):
We embedded layers of leadership at all levels.
Everything from the top down to positionleaders, that could serve as leads to the team
in order to keep continuity and ensure thatpeople are communicating and that they're
working collectively together.
So, really, the management of it and and andlayering that in was an enormous piece of
(10:28):
getting this this machine to work.
People tell me all the time, like, hey.
We try to, you know, outsource, you know, acouple accountants, and we we just couldn't get
them to to do what we wanted them to do.
The other side of it is we go we put themthrough a rigorous training program.
You know, they're not only learning I mean,they all have a baseline of accounting.
(10:48):
Right?
But they have to learn construction principles.
Construction principles are not easy.
Job costing is not easy.
They have to learn about software.
They have to learn about the differentplatforms and so forth.
So we put them through a rigorous trainingprocess to bring them up to speed, to
understand the things to support our business.
So that's how we've done it.
(11:08):
Alright.
So talk to me a little bit about do they haveno.
Did clients have concerns about actualoutsourcing?
Like, did you talk about this in any way withclients?
Great question.
It's changed.
It was it was, when we first came out of COVID,when there was less of maybe a dependency upon
it or, I guess, an acceptance of it, We got alot of questions.
(11:32):
And it wasn't necessarily, hey.
You know, do they know what's what they'redoing?
It was always a question of security, privacy,etcetera.
And so that is always a concern.
And, essentially, the way we reassure them iswe talk through how we operate.
(11:54):
We are always doing things on their softwareplatform.
All of our servers, everything that we have isall US based.
Things like bank codes and so forth go througha central person, such as myself or another,
person in the organization that's at amanagement level.
So we do a high level amount of, securityprotocols, and we monitor that.
(12:20):
Everybody goes through monthly securitytraining, but to me, that has been the way that
we've ultimately, solved it.
Even to the point where we've had to we'll pusheverything through a centralized, server that's
whitelisted, from an IP address perspective.
So they have confidence that the data is notnecessarily getting outside of of of our 2
(12:43):
systems.
Okay.
That's pretty technical for, for, you know,when we talk about security more than most non
technical owners, and partners would talkabout.
So, you know, when it comes to hiring people,you talked a little bit about there's
accounting and then there's constructionaccounting, right?
(13:04):
And, can you talk a little bit more about thechallenges around what it takes to actually
train someone and the difference in sort ofthat accounting?
The and give us even some stories or challengesand how you kinda came across this.
So so training and the accounting side, it ityou know, outside of, our controllers that we
(13:28):
hire that have a specific constructionexperience, it's not rare for us to hire
somebody based on skill set, and who they are.
My partner and I both come from a big four.
And the first thing you'll notice at all bigfour is everybody comes from different
backgrounds, different educational backgrounds.
(13:49):
They hire people that are competent, peoplethat are adaptable, people that have critical
thinking.
And we take we've taken those principles, andwe actually apply them very much to the way we
turn around and hire people.
If you hire people purely off skill set, youwill be disappointed, especially in our world
(14:11):
where we have so much customer interaction.
We've we've hired, for example, controllersthat have come, straight from the industry and
try to put them into a more consultive role.
It doesn't work.
It's easier to take somebody who has been maybea, that's worked for, say, a CPA that has had
(14:32):
construction clients and to have them adapt to,you know, our world.
Funny enough is one of the some of our biggestsuccesses, especially from the the US side, are
people that have worked in the serviceindustry.
We have people that have been bartenders andwaiters and, flight attendants that have this
(14:54):
educational background, and they were inaccounting, and then they left for whatever
reason, and they try to come back in.
And we're able to then embrace them becausethey're they're they they're hungry.
They wanna learn.
They have the communication skills, and we canactually get them, across and make them
extremely successful.
I mean, they make themselves extremelysuccessful because those are the kind of people
(15:16):
that we we we go out and we we seek.
Now the challenges with constructionaccounting, we have so much experience.
You know, we have have 70 people in theorganization.
We have, you know, roughly 20 that are are highlevel professionals that understand
construction accounting.
We go through a rigorous training program whenpeople come on board.
(15:39):
They not only learn about how to do theconstruction accounting and learn the basics,
but they also learn how to be consultive.
They learn how to provide service value.
They learn learn about deadlines and projectmanagement.
They learn about the fundamentals of gettingthings across the line.
(16:00):
We have training environments.
We have training material.
We provide, you know, a lot of our our ouronboarding is 1 on 1.
So for example, it's it's it's not always ourhighest level people that are are training our
our our lowest level people.
It's it's the person next to them, and it's theperson, you know, directly above them.
(16:21):
So there's a lot of shadowing, a lot ofstandard, you know, operating procedures that
we we instill.
But yes, it's it's it's not easy.
We've, and it's something that we historicallywere not great at and we've learned over time
that if we start to follow this program, we canreally get people up to speed and get them up
(16:41):
fairly quick.
It's definitely something that they have togrow into.
We talked a little bit about, hiring.
So why don't you talk a little bit about sortof philosophy around hiring and adaptability?
Sure.
So how do you figure out that, you know, that'sa key part of, you know, your hiring, you know,
what hiring looks like.
And then talk a little bit about also clientinteractions, right?
(17:05):
Because construction industry is very specialin how they interact.
They have zillion vendors, zillion partners.
Like, things can get lost.
Like, it can get very complicated very fast.
You've and the work in the whips, work inprogress, reporting, like, those those can be
(17:28):
quite taxing.
So talk about the, you know, when it comes tothe people that you're hiring, how do you test
for adaptability?
Yeah.
Absolutely.
So one of the first things that we do when wego out and we, hire somebody, obviously, we're
going in, we're looking at their resume and soforth, which, you know, tells you this much.
Right?
(17:48):
But the first thing we do is we actually pushthem through what we what's called the
predictive index.
And predictive index is a scientific methodthat they've, this company has adopted.
I think it's in a pretty sure it's an opensource one.
Other companies like Culture Index do the verysimilar thing, and they're essentially
personality tests.
And predictive index measures dominance,extroversion, patience, and formality.
(18:15):
And essentially, it'll score them, relative tothe standard deviation of of most people.
And, that tells you a lot.
So, by looking at the different scores and andagain, you don't have to sit there and look at
this from a raw data perspective.
They'll put people in the different categoriesand there's no wrong category.
People are who they are.
But the fundamental aspect of this is that,hey, since you were 12, 13 years old, you're
(18:41):
kind of who you are, and there's things thatyou learn and there's certain things you can
work on, but some of these things aren't reallygonna change.
You are who you are in that sense.
And so what we've done is we have a lot ofpeople.
You know, we have 70 people and we've hadpeople that have come and gone.
We've gone through, you know, we've sent everyrecruit through it.
(19:03):
So we have a ton a ton of data on, you know,who's successful, who is not successful.
And we've been able to triangulate that.
And so when we're looking at the, when somebodygoes out and takes one of these surveys, not
only are we looking at, you know, what theirpersonality type is, but we can then say, hey,
(19:24):
how does that look compared to the othercontrollers that we have or the other techs?
And what that process does, and this is one ofthe my favorite things about the predictive
index is that it gives you an interviewquestion list.
And so what it does is it says, hey, thisperson is, you know, x, y, and z, and here are
the things that are really good about them.
(19:46):
Validate these.
You know, ask answer ask these questions andvalidate these sort of answers.
And the same thing is on, hey, this personshows, hey, they might be really, really
impatient.
Ask them this question and see how they answerit.
And so our process is is we have them take thetest, and then we go in and we do a panel
interview.
So they either come on-site or in cases ifthey're a remote person, you know, 2 or 3
(20:09):
people are asking the questions related tothat.
Other things that I look at, flexibility is abig thing, for me.
You know, we're in an environment where we haveclients that are remote, different time zones.
We're super flexible with people, and so weobviously want them to be super flexible as
well.
That's a big thing.
I believe that always wanting to learn and havea curiosity towards, continuous education is
(20:34):
such a quality that they have to have, thiseagerness to learn.
So we're always asking questions like, hey,tell me about what you like to read or tell me
what you're interested in or where do you wantyour career to go?
Or we'll ask a question, you know, what is,what's your ideal job?
You know, where do you what what would be thebest job in the entire world?
(20:56):
So we're looking for people that have somedynamic personality, but also are are are
critical thinkers.
We'll throw some of those oddball questions in,you know, that Google does.
And most of what we're trying to do there isto, hey, are they creative?
Are they, going in?
Is there some level of of critical thinking?
(21:16):
And you would be shocked at just the the lackof wanting to answer the question, or try to be
creative or funny.
I mean, that's ultimately what we what we'relooking for.
And then from, a gauge of we obviously, we gothrough accounting questions.
We ask them about their Excel skills.
I'll go a little deep on Excel.
I find people tend to give themselves, higherratings than they really are.
(21:41):
So we try to dig a little bit into.
And actually it's an integrity thing.
Because I'll ask people, because I'm I knowExcel very, very well, and I'll go, okay, tell
rank yourself on a 1 to 10 in Excel.
And it's really a 2 part question.
Number 1, I do wanna find out how good they arein Excel.
Number 2, I wanna figure out how honest theyare.
So I'm like, okay, why?
Tell me why you think you're a 9.
(22:01):
And then it starts to kind of break downbecause there's only certain things you know if
you're a 9.
So it it it kinda helps me understand, youknow, the person they are, if they're gonna
tell the truth.
I love the people that come in and says, oh,I'm only a 6 because I can do this, but I
really wanna do this.
So I'm looking for honesty.
I think that's a big thing.
It speaks towards the kind of person, that theyare.
(22:23):
But, yeah, I mean, those are some of themethods and and the the practices, you know,
that we do when we're going through our hiringprocess.
And and this is across the spectrum.
We we don't, discriminate across, you know,whether it's somebody in the Philippines or US.
We're always using the same structure.
So, I'm I'm a little curious.
We had talked in the pre interview a little bitabout a story, about how your interview process
(22:50):
helps find people, but it also helps kinda givegive a chance to people.
Yes.
Do you know the story that I'm talking aboutthat we talked about
in the previous interview?
Absolutely.
So Okay.
Yeah.
So we recently we recently had a gentleman comein, and, you know, it's a the younger
generation, and and that's fine.
I mean, there's everybody's different.
(23:12):
It's a more casual world.
Let's put it this way.
And then, so he he came in, to do theinterview, and did amazing.
I mean, you know, was met the skill set.
They felt he had a good personality, but he wasunderdressed, let's just say.
You know, jeans, tennis shoes.
And so they went back to the recruiter and theysaid, hey.
(23:35):
You know, hey.
We like this guy, but, you know, his appearancejust isn't what is needed, you know, to go
through this sort of interview.
You know, we interact with clients.
We are you know, people are going on-site.
There's a professional aspect you know, to whatwe do.
And they invited him back for a secondinterview.
The the recruiter actually relayed thatinformation to him.
(23:57):
Comes back for the second interview, jeans andt shirt.
So there's certain things you can't change inpeople, and and and that is a good example of
just if they can't adapt to just straight upfeedback, then that becomes a problem.
And I'll I'll tell you, in my career in mycareer, one of the best qualities, one of the
(24:21):
number one qualities in people is your ability,no matter who you are, is to take feedback from
other people.
And, it it tells you about their character andtheir ability to be vulnerable and to
essentially look at things from multipleperspectives.
(24:42):
I mean, that's where growth comes from.
It doesn't come from from people on the topalways, you know, telling you that.
It come it comes from all sides, and so I findthat, you know, whether you whether you agree
with it or not, we're not talking about thatnecessarily, but but listening to people and
being able to fold that into something is, Ithink, is extremely important.
(25:06):
So, you know, we'd go through, you know, notonly are we hiring people, obviously, we're
bringing people in the organization, but we gothrough performance assessments twice a year,
You know?
And it's self assessment, and then we'refollowing up with, you know, a a manager's
assessment.
And there's constant feedback.
We do monthly surveys, that we're going in andwe're validating, you know, the work that
(25:29):
people are doing.
We're always constantly giving feedback.
And I think that's an extremely importantthing.
And people who don't like that feedback, theydon't last very long.
So predictive index.
I wanna I wanna just narrow in on that for asecond, Payton.
Because it's different from Disc.
Right?
It's different from a lot of the other it'sdefinitely closer to Culture Index.
(25:50):
Yeah.
They're very
so from can you talk a little bit about, let'ssay, you know, maybe where you figured out that
there's certain personality types that mightnot work out, right, at least in the type of
culture, you know, in the type of company thatyou are Sure.
Where it didn't work out.
And then after that, you're like, okay, thisprofile just we can't have that or at least in
(26:15):
this role.
Sure.
So the measurement, when they start to look atany one of the scales, like, for example,
dominance, they always start with, you know, 0,and then they measure out in standard
deviations to how extreme somebody is, k, ateach one of the a, b, c, and d.
(26:36):
Then what they do is they layer in whatever thepattern is.
So for an example, if you're you're going for,like, in a high, you know, a and then you're a
low b and then you're even a low c and then yougo over to a high d, that pattern represents a
a personality type.
Right?
But then within that personality type, it couldbe along the lines of a standard deviation or
(27:02):
it could be extreme.
K?
Good example.
I'm a captain.
My wife is a captain.
I'm an extreme captain.
I'm I'm sitting on standard deviations of of,like, of of 2 in almost everything.
My wife is is closer.
So those extremes are are somewhat importantjust as much as the pattern.
(27:27):
So the thing that we focus on the most is theis the pattern, the pattern of behavior.
So for an example, when we look at ourcontrollers, we want them to tend to be a
little bit on really kinda shrunk in themiddle.
And, we want them to have a, an ability tomanage people.
(27:47):
Because you don't want somebody that isabsolutely, you know, just submissive and and
and and is is almost in the sense of overlydemocratic.
Just fold just fold.
They'll never get anything done.
Yeah.
They can't make decisions.
And so
So essentially if so essentially if someone ifthey Yeah.
Give feedback back like, like if they were in amanagement position and an employee said, well,
(28:11):
that's not a good idea.
They'd be like, oh, okay.
And and not even question why.
Oh, yeah.
A 100%.
It's and and it it's crazy.
So, you know, another you know, if you look atthe at the b, it's, the, the the socialization.
Right?
We hired a a great controller once, and she wasa almost a 3 deviation on when it came to her
(28:37):
ability to become an extrovert.
Right?
Oh, man.
That didn't work.
Because every time she'd get on a call with aclient, all she wanted to do was talk.
And we're dealing with accountants.
Accountants don't necessarily or aren't themost social people, and work wasn't getting
done in that sense.
And and and and everything was meant asrelationship building, and we we encourage
(28:57):
that.
But it it shows how much it matters.
Honestly, a lot of the times, it's it's about,oh god.
This this world's not gonna work.
This person's type of personality is probablynot gonna work in this dynamic.
But the good thing is is we do have differentpositions, and we have, you know, we know where
(29:18):
people like, for example, our our ouraccounting techs, which are really responsible
for our data entry.
Precision.
We want that precision.
We want them to be able to be precise.
That is a very high quality of that individual.
And so those are things that we try to to focuson.
If they're not, if they're loosey you know,goosey and they're all the way to the left on,
(29:43):
the, the formality is what they call it, thenthen that becomes a problem.
But when we're talking about maybe ourconsultants or even our our controllers, hey,
that format, that preciseness doesn'tnecessarily you don't want you don't want
somebody overly precise there, because we don'twant them chasing, you know, $2, you know, in
in a in a $100,000 bank reconciliation becausethey just have to get it.
(30:05):
They have to get it right.
No.
There's better ways to do it and there'sthere's more efficient ways to do it.
So we want them to be thinking, hey, I don'twanna be as I don't need to be as precise.
I need to be as good as I can, and then we canmake some adjustments in order to get it right.
And that's the kind of that's the differencebetween somebody who is something highly
technical versus somebody who ultimately has tomanage and get things across the line, get
(30:28):
things done.
I liked I liked the deep dive into thepersonalities.
I wanna talk a little bit about process here.
Yeah.
What is not understood in constructionaccounting?
I know that's a loaded question, but
Well, let's break it down.
I'm gonna break it down into 2 things.
I'm gonna break it down into the functionalaspect of it, and then I'll I'll break down the
(30:50):
let's we'll talk the process management side ofthings.
From a functional perspective, one of thebiggest failure points we see, companies go
through, when trying to hire, somebody, whetherit be a staff accountant or or even a
controller, is a lack of understanding of jobcosting.
(31:11):
Not understanding the fundamentals of whatmakes up a job, what goes into the job, and how
a job is measured.
I came from a deep background in manufacturingand a lot of cost accounting.
I look at construction jobs as larger versionsof that.
And everything needs to be, tracked at a, adetailed level.
(31:34):
And so oftentimes, if you don't understandthose sort of fundamentals, which then play
into much larger pictures such as, you know,revenue recognition, which is a very, very
important thing, or play into, you know, youryour ultimate WIP adjustments for over under,
which are critical in, the measurement of thebusiness and things that, the banks and the
(31:57):
bonding companies are gonna look at.
So at the the the most raw rudimentary level,they have to understand the fundamentals of job
costing and what makes that up.
Understand, hey, this is a contract.
These are change orders.
Here's my budget.
Here are my costs and here's how my costs arefunneling in.
And then there's a whole other layer when youstart to get into the true costing side, and
(32:21):
and the fundamentals of of how you do thatrelative to a chart of accounts versus how you
would handle that, you know, through a projectmanagement system where you're using things
like cost codes and so forth.
So there's just if if they don't have thisfundamental experience, and even taking even a
step further, maybe even with the software, Ifind that less The software's usually not a big
(32:45):
deal, but you have to have that baseline.
If they don't understand that, then they're notgonna under If they don't understand the
smallest, most, you know, detailed part of it,they'll never understand the big picture
because all those things are just componentsthat build up into, a much larger, item.
And then from a process perspective, oh, I lookat construction accounting construction
(33:09):
accounting in its best in its in its best is aa 360.
And and I look at it like this.
Yeah.
But somebody who goes out that estimates, thatestimate turns into a budget.
From that budget, you're determining what yourcontract is.
Those then flow in and become the baseline foryour your financials.
(33:32):
Right?
So you have, obviously, your schedule valuesand how your contract, your schedule values on
how you're gonna charge.
You have your cost on how you're going tomeasure, but then you also have your project
management system, which needs to worktogether.
And this is often an area where there are a lotof problems.
You know, there's a lot of, let's just say,aging ERP systems.
(33:54):
I don't know if I'd call them ERP, you know, inthe construction world.
And then we have some leading, you know,project management companies out there where,
you know, we've got the Procorers and buildertrends and so forth.
But that project management and the measurementof those, though, of the costs have to come
together.
Right?
There has to be some control.
But then it's the feedback of that.
(34:16):
Right?
It's it's how am I doing cost wise against mybudget?
You know, am I on track?
Am I off track?
And why?
Am I am I, am I why are my material costs allof a sudden, you know, so high?
Well, maybe my material costs are high becauseI I underestimated them or maybe it's because
(34:40):
there's, a rise on the commodity cost and and Ineed to analyze that.
But at the end of the day, going back to the360, is you're doing all this and you wanna
analyze all this so that you can then tightenup your estimates.
It's, you you want to be able to extract andgain the most profitability.
And so oftentimes, what we're doing is we'renot just doing the work, we're trying to teach
(35:04):
them the fundamentals of, cost accounting andand job costing.
And some of that, like, for example, we'll sitdown with our clients and we'll have monthly
web meetings.
And what we're doing is we're going throughtheir particular projects.
We're saying, hey, are all the change ordersin?
Has everything been accounted for on both thecontract side as well as the budget side?
(35:26):
Okay.
How do you feel about where we're at relativeto, the the progress?
Where are we on a percent complete?
Oh, well, you know, there's no way that youthat's just 40%.
We're actually 50%.
Well, why is it 50%?
Well, you know, this last month, you know, wewere gonna, you know, in the budget, we were
gonna go rent this, you know, boom and it wasgonna cost us $50 and, you know, it it it
(35:49):
didn't.
We have, we're using one of our own fixedassets.
Okay.
So let's account for that.
And so that's where they have to go in andstart to make some of those adjustments to
their budget so they can start to tighten thatup.
We really just want to get them to look atthis.
So on a, you know, on on a frequent basis, youcan't you can't do a WIP every every week.
(36:09):
But a month is is pretty good if you're in abusiness where you have jobs that are extending
over, you know, 30 to 60 days, and you have alot of moving parts in your and and and maybe
resources that are being consumed acrossmultiple projects.
But it's very much, a learning experience inteaching them about the whole cyclical aspect
of of of of job costing and how, if you do itright, how it can really, really benefit you,
(36:36):
in every area of your business.
So, you know, because you're you're helping,construction companies, in some fractional
sense or becoming their kind of entireaccounting department, got any horror stories
to share?
I'm sure you, I'm sure you have.
And maybe, maybe, and maybe even some warningsto people, that are in the construction of, if
(36:57):
you are doing this or if you, if you have donethis, you may wanna reconsider.
And maybe even why, if it's not obvious.
So Maybe
in a Chicago story.
I'm trying to think about this in the contextof I can talk about clients that This is a
tough one because I'm trying to put this in thecontext
(37:17):
of,
without, you know
No names are gonna be given.
Yeah.
No names are gonna be given.
I I I think in general, it is not uncommon forus to go in it's actually more it is common.
I'm gonna put it this way.
It is common for us to go into organizationswho believe they have everything right, and
(37:38):
that they've been doing things the way thatthey should be doing for an extended period of
time.
And we go in, and we look under the hood, andit's, just a fundamental, disaster.
Their idea of what is reconciled is is is not.
And so more times than not, we're having to goback, to the previous point of where their
(38:06):
taxes were previously filed, and we're havingto start over at that point.
And and and and not in all cases.
When I say start over, it doesn't necessarilymean we're reentering stuff, but we're having
to restart the reconciliations and start to gothrough that process to ensure everything is
accounted for and that everything iseffectively, in the right spot.
(38:29):
Some cases, you can't go back and just do jobcosting for everything.
Sometimes you have to create a a centralizedproject, and you throw everything in it, and
you call it a day.
I mean, there's just some things you you justyou just simply cannot do.
I find that the worst clients that we've had,when you have an owner who has a perception of
(38:51):
what's going on, and then you have an employeewho, either, a, has a perception, their own
perception of what's going on, or, b, they'rejust fundamentally do not know what they're
doing.
And that can oftentimes be contentious.
You know, one of the things that we really,really do an amazing job at is is becoming a
(39:11):
part of the team.
We are not one of those fly in once a month,fly out.
We are interacting with our customers on adaily, weekly, monthly, quarterly basis
depending on what we're doing.
There's constant email communication.
We're we're we're moving documents, you know,behind the scenes, you know, using, you know,
(39:33):
secure sites where there's there's just a lotof commute or texting.
You know, there's a lot of communication goingon.
And, oftentimes, when, you know, that thatdoesn't take place or, you know, we had a
client, this last year who was just sabotaging,sabotaging absolutely everything, and
(39:57):
finding examples?
Like, can you give examples of what what doessabotage look like?
It's big.
And and and fraud is a big one.
Sabotaging and fraud.
Pure fraud in in the construction industry.
That that that's one thing that, I can say isso prevalent because of complexities with the,
amount of data, that's moving across and thelot of multiple vendors.
(40:19):
But to the point where she was literally goingin and modifying PTO policies on people,
including herself, paying herself extra money,through different payroll runs.
We believe there could be, some potential fraudwhere she was, set somebody set herself up as a
(40:39):
vendor.
And that's it's crazy on the construction.
It's it's so prevalent.
It's it's not about if it's gonna happen.
It's about when.
And so that's actually a good thing to pointout.
One of our policies is we don't do treasury.
So, one of our ways that we protect ourselvesand our company organizationally is we're not
(41:00):
we're not writing checks.
We're not transferring money out.
We're not paying bills.
Those are things that we reserve to the clientbecause we believe that they need to be in
charge of the the treasury.
When we get access to their banks, we will notif they have treasury functions, we will not
interact with it.
And we want read only.
It's very explicit.
We want read only access to this.
(41:22):
Now if they have payment portals and they havetheir credit cards and they manage that, we're
perfectly good with that.
Right?
But it's it's, to me, the fraudulent aspect ofit, and and just being aware of that.
And here's the other great thing about having athird party is we can prevent a lot of that, or
(41:42):
we see that that that stuff going on, and we'reable to actually really serve as a third party,
that allows that natural segregation of duties.
I mean, that's another that's another great onetoo.
Somebody who is buying things, paying things,and has access to checks and the banks.
(42:04):
That's a no no.
You don't want the same person doing thosefunctions.
That is the most it's the best example of of apure segregation of duty because somebody can
go set themselves up as a vendor.
They can go create an invoice.
They can go pay themselves and nobody is gonnaknow.
And they could do it very incrementally.
So it's to me, having that sort of segregationof duties and making sure that there's a level
(42:28):
of accountability and that there's all eyes oneverything really going, you know, in and out
of the business.
I mean, even just, you know, we have somecustomers where we're going in.
And a lot of times just because they it's it'sa they're trying to manage their their their
cash.
We're going in.
We're reviewing.
We'll take a 30 minute meeting once a week oronce a month, and it's we're going through AP.
(42:50):
And we're making decisions.
And there's, you know, 3 or 4 people in thecall, and and they're saying, hey, what is
that?
It's amazing what we end up discovering.
You know, and, there there are multiple timeswhere somebody signed up for some subscription
and, you know, a year later it pops up and theydon't need it.
Okay.
Well, let's take care of that.
So going through that review and not justputting it on one person is kind of a key thing
(43:11):
too.
So I I guess a combination of those sort ofthings.
So fraud obviously comes in a lot of differentforms.
And what I'm hearing, keeping a separation ofduties, you either have to have a large enough
department to be able to keep that separationof duties or use a third party to be able to
essentially run the checks and balances
Correct.
Between internal and external.
(43:33):
Right?
You've done you've done it by simply sayingyou're not do dealing with any of the
countries, so no account transfers out.
Right?
Which is, I think, from a lot risk andliability perspective, I think that's a win win
for both for all parties involved.
Mhmm.
So let me I think we we got a good idea, atleast, on some of the on some of the accounting
(43:57):
aspects, around, you know, around theconstruction accounting.
Why don't we talk about you were in Hawaii orcompany started in Hawaii?
You're in Arizona?
I can almost guarantee there's gonna be atleast 1 or 2 problems that you encountered
almost immediately.
One of those is, do you have any relationshipswhen you started in Arizona?
(44:20):
And if let's start with that.
Do you have any relationships starting up inArizona?
You're saying so when we came in, like, what myrelationships with anybody when we opened up
the business?
Mhmm.
Nope.
Okay.
No.
That was
So so so if you didn't have any relationshipsto start, that's a really hard that's like
being a startup, starting from nothing.
So if you didn't have relationships, how do yougo from 0?
(44:42):
Right?
It's way easier when you have existingrelationships because that wheel just keeps
step by wheel keeps spinning.
I mean, when you're at 0, that's a lot ofweight to to move to get it going.
Oh, gosh.
It was so here's this is kinda this is twosided.
So we we did when we first started, we did havean, an additional partner who had who's they're
(45:06):
no longer, a partner with us anymore.
But, they we we were sharing a businessdevelopment person who is phenomenal and still,
a great friend and, a connection to thebusiness today.
Does a lot of other stuff, but he's phenomenalphenomenal person.
And he was able because he did have a lot ofthose relationships with, you know, banks and
(45:30):
insurance companies and so forth, but that wasonly one piece.
The the second part that was really, reallydifficult was there's the relationship side,
but you have to be able to go in and convincethem.
So you can meet them, but now you gotta go inand you've gotta convince these guys to go
convince their clients to go to you, and thatto me was the hardest part.
(45:57):
A, walking into a a brand new business, b, wehad to go and kind of develop our own marketing
collateral and and and and that in the sense,marketing collateral.
You know, in Hawaii, people know who Red Hammeris.
It's very relationship based, but they know whothey are.
(46:22):
When you're opening up to a new market, peoplewant to, oh, who are they?
I'm gonna go and jump on, you know, their theirwebsite.
I wanna go jump on their LinkedIn.
Oh, can you send me a 1 pager?
Oh, you know, what are your, you know, what'syour profit what's your business proposition?
I mean, all these sort of things that that thatdidn't exist because it was the way that they
(46:47):
sold out there is just it was justfundamentally different.
So we had to go and almost, like you said, astartup, we had to go and and and and and
almost build this stuff, not from scratch.
Obviously, we took all the great things and Butwe had to slowly sort of build up, all those,
all those things as well as a a sense ofconfidence so that when we're going out and
(47:11):
we're we're selling to our customers, you know,we're we're selling something that's for real.
I mean, that's that's the the worst thing youcan do is oversell something and under deliver.
Right?
And so we we had some initial success in,bringing on, on customers because we had the
avenues.
But, man, I I tell you, the sales, I think Iwas batting for, like, like, 100 for a better
(47:38):
part of a year.
I mean, literally one.
I was getting 1 out of 10.
I couldn't figure out why we weren'tresonating.
And our initial sales process involved me kindacoming in exec, and then I would have, one of
(47:58):
our controllers on the call, and it would be,you know, back forth.
I would say this, and then she would come inand kinda fill in the details.
And she's phenomenal and and great, but forsome reason, it just it didn't resonate.
And sadly, and and and I really do trulybelieve this.
I I go sadly, she was a young female, and I andI think that people looked at that poorly, and
(48:24):
they could not be more wrong about it and andand it it's insane to me.
But I I do think that that was was one of thereasons why some of these companies didn't come
on board.
I thought it was absolutely ridiculous.
But nonetheless, you know, as things started tomigrate, It was funny.
It was, I was going in every single call.
(48:46):
I'd create this PowerPoint presentation.
I'd pull their logo in, and I'd go through thissort of PowerPoint, and and it just it just
wasn't working.
And then it was one day I did not have time todo it.
And literally had no time to go in and do it,so I'm like, okay.
I'm just gonna get on this call.
And I sat there, and instead of sitting thereand me going out and saying, here's what Red
(49:09):
Hammer is.
Here's our timeline.
Here's what we do, and me talking for 15minutes about who we are, I just went and said,
hey.
What are your problems?
You know, what what are you having issues withtoday?
What are you not able to get across the line?
You know, how can we help you?
And I started to focus on the problemstatement.
(49:31):
I started to focus on what is going to be thatthing that is going to I mean, you're you're
I'm talking to you for a reason.
Right?
You're you're you're contacting us, so you'retrying to fulfill a need.
What is that problem, and what can I do topotentially help you with the problem?
And the minute I started to focus on theproblems and the emotional aspects of stuff
(49:53):
that build trust, building trust, then we canstart to talk about how we can try to build a
solution for what that is versus me trying tosell you some big thing when maybe all you need
is this sort of sliver.
And so I I really started in to focus on sortof that relationship based sales.
(50:15):
Funny part is 360, that's what they do inHawaii.
So we don't come in with this heavy, heavysales process.
I'm not gonna throw you a bunch of ofPowerPoints.
If you want a 1 pager, I'll send it to you.
But at the end of the day, I am going to comeinto a meeting, and I want to learn about what
your problems are, what you're dealing with,and how we can turn around and solve them.
(50:37):
And if we are not the right person to solvethem, I will turn around and tell you who is or
where you should go.
One of the biggest fundamental problems we seeall the time, and I hear this a lot, being
that, I am a member of, of EO Entrepreneur'sOrganization.
And I hear this all the time is I need a CFO.
(50:59):
I hear it all the time.
I need a CFO.
I need a CFO.
And I ask them, well, why do you need a CFO?
What what is the reasoning that you need a CFO?
Well, you know, my financials are are are 60days late, and, you know, I just really need
somebody to close the month, and, I needsomebody to help me with, you know, my cash
(51:19):
flow and and and there's nothing in there aboutstrategic purpose.
There's nothing in there about, oh, I need towork on the capitalization of my business, or I
need to handle some some debt, or I wanna goout there.
I wanna buy another company, or I wanna besold, or I wanna focus on strategic
(51:40):
forecasting.
It's usually they fall back on fundamentals.
And I always come back, you don't need a CFO.
You just need a controller.
You just need somebody who has good sense ofaccounting that can come to your organization
and get things straight.
So I just I I find it, I find it all just kindafascinating on the needs, and the
(52:05):
misconceptions.
So, you know, when we're going through thisprocess and we're selling, it's it really is.
It they have to be we they have to be a fit,and we have to be a fit.
It has to go both ways.
Anytime we've ever tried to sell something forrevenue, knowing that there could be a problem,
it has been a failure.
And, we're getting to the point where we justhave to start we have to say no.
(52:27):
We have to and and we have.
But, you know, it if it's not gonna work out,it's not gonna work out.
It's not worth the pain.
It's not worth the what you put on your people.
That's that's really where I get the theheartburn is what it does to the people.
So It sounds like they need Red Hammer, not aCFO.
Yes.
And if they need a CFO, I will recommend 1.
No.
Totally.
(52:50):
Yeah.
This is, this has been awesome.
Very intriguing in regards to the sales, like,being more relationship driven, not, going
through all the features.
You know, a lot of service companies, they getstuck in the features aspect in comparison to,
like, what's the result?
What's the outcome you're looking for?
And is it just for this thing?
(53:11):
Is it for everything?
And then kinda working the process that way, ona true relationship in comparison to, like,
here are the 38 things we could possibly do foryou.
So, that's been great, and, we're we're aboutout of time here.
So, I wanna kick off our last question here,which is, Scott, if you could go back 20 years,
(53:31):
what would you tell yourself?
Oh my gosh.
What would I tell myself 20 years ago?
Well, 20 years ago is definitely a differentperson, in the sense that it to me, the image
that you portray defines what sort or the way Iguess how do I put this?
(53:53):
The how you portray yourself is how people willperceive you relative to leadership.
And I'm a firm believer that you have to be arock.
And, and if you're going in and you'reproviding calm to a situation, oftentimes we
have, like I said, we have customers that arefreaking out for whatever reason or not.
(54:17):
The worst thing I can do is tell them that theyshould be freaking out.
That's the worst thing I can do.
It's about bringing calm to the situation, and,and if you do that, that helps allow them to
vent, build trust, and then know that you canguide them through that.
(54:38):
I think that, you know, I think early on in mycareer, I was a fire starter.
I was, you know, aggressive, young, workingthrough things, and, you know, I had my own
sort of motivation, but sometimes that's notgreat for the larger picture of things as it
can stir things up and create animosity and andso forth.
(55:00):
And, you know, I had a senior manager tell meonce at at Deloitte when I made a big deal out
of this.
I was like, you just gotta be The Rock.
Like, if you're the steady one, then everybodyelse below you will look to that and say, okay.
If he's calm, then we can remain calm.
And I and I just believe that from a trueleadership perspective.
At the same time, it's always good to know whenyou should invoke emotion or you should invoke
(55:24):
passion because I think that's also anothermotivating factor because if they know you to
be kind of this calm person, but then, whichI'm not necessarily, but if you're are a
certain way, and then all of a sudden, youextrude a different personality, then they can
start to look at, maybe the seriousness of of asituation.
(55:46):
So I think I'm not saying you have tonecessarily be calculated, but just be aware of
who you are and, and, you know, how people, youknow, perceive you in that in that line.
So that's that's what I would tell myselfeasily 20 years ago, 30 years ago.
I think I would have gained a lot of value outof that.
(56:07):
No.
That's good that's good advice.
If somebody wanted to get a hold of you, what'sthe best way for them to do that, Scott?
Obviously, they can go to our website,atredhammer.io.
My email is sfranchin@redhammer.io.
Those are are probably the 2 best methods.
(56:27):
Awesome.
Sounds great.
This has been fun.
Sorry, listeners, if there's a little bit of,different sounding, little Internet issues over
at the Nagle residence, today.
But, in any case, Scott, you've been fabulous.
Thank you so much for your time.
And to all our listeners, until next time.
Adios.
Adios.
(56:48):
Take care, guys.
Adios.
Thanks for listening to Building Scale.
To help us reach even more people, please sharethis episode with a friend, colleague, or on
social media.
Remember, the 3 pillars of scaling a businessare people, process, and technology.
And our mission is to help the AEC industryprotect itself by making technology easy.
(57:12):
So if you think your company's technologypillar could use some improvement, book a call
with us to see how we can help maximize your ITcybersecurity strategy.
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