Profitability matters in cloud ERP – Tandem HR’s journey towards business insights with Sage Intacct

Sometimes a conference presentation sticks with you. In this case, it was Tandem HR CFO Tanya Yakhnis, bringing fresh air to the vital topic of profitability at Sage Intacct Advantage 2018.

I’ve been preaching advocating that cloud ERP value realization is not out-of-the-box. You have to work for it, and go-live is just the beginning. One of the most important – and elusive – areas for value extraction?

Pulling insights you can actually use from the “single source of truth” you’ve worked so hard to achieve within a cloud ERP system. So when I had a chance to catch Yakhnis presenting on “Profitability! Gain Crucial Insight into Your Business,” I was intrigued. I knew from her past Sage Intacct presentations that Yakhnis brings a thoughtful take beyond tech talk (see: Tandem HR’s CFO – how we create exceptional workplaces, and grow with cloud financials). This time around, Yakhnis led off with a call to action for the finance experts:

Measuring profitability can take accountants out of mundane accounting and into the future. We can create impact – we can now affect change.

That might seem like an obvious statement, but it’s not. Even as ERP software took hold in the 1990s, many finance folks simply became electronic bookkeepers and report generation experts. Their strategic value remained low, and that’s not good enough. Today, modern cloud financials give an extra edge to finance teams looking for business impact. But you still have to get the most out of that software.

Measuring profitability – a journey with a learning curve

Too often, even super users don’t know all the value they can unleash within their own systems. Of course, sharing those tips is the biggest impact of user events (not celebrity keynotes). So early on in her presentation, Yakhnis took an audience poll: how many attendees were using more than one Intacct Dimension to assess profitability?

I won’t go into Dimensions in detail here, but many finance users have told me that Sage Intacct Dimensions are their secret sauce. It allows them to tag transactions and operational data with Dimension values. That allows for slicing and dicing that data down the line: revenue by region, by project, or by multiple combinations – which is what Yakhnis was getting at.

Getting insights is not as simple as tagging and analyzing. In her presentation, Yakhnis emphasized that profitability analysis is a journey with a learning curve. Recently I spoke with Yakhnis and asked her: was she surprised by how many users are not familiar with these profitability assessment tactics? Yakhnis:

Actually, it is surprising to me. The whole idea of this presentation was sparked by someone who asked me to do this presentation at NAPEO, which is our industry association. A lot of conversations started. People are asking me questions – “How do you do this?” And then I was asked to write an article about it. This is clearly not common sense.

So when did Yakhnis realize she could apply performance measurements for profitability within Sage Intacct?

Well, the whole reason behind picking Sage Intacct and implementing an ERP system that wasn’t Quickbooks is our desire to have the ability to do that. We were an organization that was always heavily focused around professional services, and measuring our impact. The challenge is – it was really hard to do.

Yakhnis and team made sure to get the Dimensions they wanted to track in place. And the results?

Since then, we’ve added more Dimensions, and we’ve changed the way we think about our business. We’ve actually changed what we sell, how we sell, who we sell to, and it became more profitable because of this analysis.

Getting started with profitability analysis

Of course, each business must address profitability analysis differently. To stir ideas amongst attendees, Yakhnis shared this slide:

How should finance teams get started? Yakhnis told me it all starts with measurement:

What I’d recommend is just think of everything that could possibly affect your business. Everything that could drive it forward, or slow it down. Measure it for a period of time, and then decide where you’re seeing differences or trends and when you’re not. Sometimes you don’t even know what those things are until you start measuring them.

Once you pick several key factors, you track them:

For us, it was the type of service we provide. So we sorted clients into these different service categories, and we measured how much time was spent on each. What the profitability was, what the net revenue versus the profitability was.

That exercise led to some surprising insights:

That’s when we were able to decide, well, some of these services are not really providing a lot of value to our clients. They’re making us busier, taking away from our ability to provide excellent service to customers.

You might not end a service just because it isn’t profitable. Now you can make a conscious and financially aware decision:

Certainly, there might be a reason to keep a client that’s less profitable than you’d like for whatever set of reasons that might be. But knowing that, and making the decisions consciously as opposed to leaving it to chance, that’s what is important.

And no, you don’t need to be running cloud financials like Sage Intacct to get started. Yes, powerful tools are a huge asset here. But inaction is your biggest enemy:

Don’t be afraid to start. Because the minute you start, the minute you are able to make more educated decisions around how to make your business more profitable.

Tandem HR’s profitability lessons

From talking to Yakhnis, it sounds like her team’s forays into profitability measurement came at a pivotal time for Tandem HR. Tandem HR is a Chicago-based, certified PEO (Professional Employer Organization, or CPEO). Their mission? Simplify human resources for their 200+ customers, with HR solutions, infrastructure and expertise.

But here’s the catch: these types of services can be packaged in very different ways. How can they have the most customer impact? Yakhnis told me through Tandem HR’s profitability measurements, they were able to determine that their full PEO service offering provided the most value to customers. I won’t get into all of that here, but the crucial thing to note is that it was something of a counter-intuitive conclusion. That’s why profitability analysis is so important. Yakhnis:

We would never have been able to know this if we didn’t perform this analysis. You really need to be able to on understand who you are, what you want to accomplish, and educate the executives on what that is. Because not every leader in our company really understood what makes the business tick.

That’s what today’s CFO needs to provide:

As a CFO, I am now in a position to help educate them about it, make a decision on what you want to accomplish, and go get it. It is changing the role of a CFO, making the CFO more of a business partner than ever before.

Of course, Tandem HR has also put this into action with their clients. Insights can spark the right conversations:

We saw that a client’s profitability was increasing quarter after quarter – we wanted to understand why. Using Intacct, we looked at the trend of hours allocated by our team. We realized we were not going onsite as much as we used to – most of the service time was now remote. Instead of assuming this shift was what the client wanted, we reached out to discuss their change in goals and objectives. We were then able to re-allocate our time more effectively, working on remote projects to enable their growth.

A key point here is that one “dimension” might contrast with another. Yakhnis:

You can measure revenue all you want. That’s great, and some clients are paying more than others, that’s fine. But you don’t know what you’re keeping if you’re not measuring the cost of labor. And so you have to focus on capturing that, and it’s hard. It takes discipline.

The wrap – it’s not just about margins

We talked about why it’s not just about a push for greater margins. As the CFO, Yakhnis sees her job as bringing these insights forward to the executive team. From there, decisions can be made and the tradeoffs weighed. At her Sage Intacct Advantage presentation, Yakhnis reminded the audience this exercise is not a crystal ball. It’s not going to solve all your business problems. She emphasized:

Your processes are only as good as your discipline.

Ergo:

If you choose to track some things some of the time, don’t expect results to be very insightful.

As always, your constituents’ needs will vary. Measures deemed important for one area may not be relevant to another. Sales may care about revenue per client, while the service team will care about the time they spend servicing the account. Relevance across business units is a different challenge for finance leaders – but it’s the right one.