San Diego Signature Analytics CEO Peter Heald sees the scope of the rapidly growing financial firm’s opportunity through the lens of “the second black box” of small business — operational finance.
“The first black box is IT,” Heald said. “Not many small business owners understand IT.”
And many growing small businesses have not mastered the nuances of bookkeeping and financial reporting, either.
Signature Analytics is a fractional accounting outsourcing firm that helps businesses build better financial reporting processes, which yields cleaner financial data that allows operational insights and, ultimately, a more clear action plan.
The company has grown from revenue of $4 million in 2015 to $6.2 million in 2016 and $8.5 million in 2017. It added 30 employees last year and is on pace for similar growth in 2018. Signature Analytics has expanded in Orange and Los Angeles counties, though about 60 percent of its revenue comes through the office in Sorrento Valley.
Like many other growth stories, it was an overnight success years in the making.
Jason Kruger founded the company in 2008, the same week financial services firm Lehman Brothers collapsed in what would become the largest bankruptcy filing in U.S. history and trigger the onset of the Great Recession. Kruger, who previously was an audit manager for Deloitte and then Moss Adams LLP, toiled away for about four years on how to position the business before he had enough revenue to hire an employee.
Signature Analytics had six employees at its five-year mark, and as the business continued to grow Kruger brought in Heald as CEO in October 2015. Heald previously was president of Cumming Corp., a project management consulting firm.
Kruger remains as president, and he said he expects the company to be at about 75 employees by its 10-year anniversary this fall. Signature Analytics now employs 10 CFOs to work with the clients.
Signature Analytics’ foundation is providing fractional services at all four levels of finance — bookkeepers, accountants, controllers and CFOs. They also train companies on how to collect data in a way it can lead to operational insights. For example, they build automated dashboards to not only break down revenues and costs but also reveal trends.
“Clients are paying only for the appropriate amount of work at the appropriate levels,” Heald said. “It starts with transactional accounting and bookkeeping, and at the higher levels we’re developing metrics and optimizing the business.”
Signature Analytics’ target is growing companies with at least $3 million in revenue. The company has a direct salesforce in the field networking for clients and also gets referrals from accounting firms and lenders, who often are looking for cleaner financials from a client.
Companies often enter into complex transactions as they grow, said Carisa Wisniewski, partner in charge of the Moss Adams LLP San Diego office.
“They underestimate how much effort goes into both the routine, recurring accounting as well as analysis that needs to happen around transactions such as equity issuances, revenue or vendor contracts,” she said. “Signature Analytics can provide variable resources to address their needs as they grow, including preparation for bank discussion or an annual audit.”
Bridging the Staffing Gaps
Kruger saw an opportunity to help companies bridge gaps in their finance department as they grew. Various skills are required at each of the four levels of financial staffing; yet a young company might not be able to afford an accountant or then a controller. Likewise, it is not optimal use of a CFO’s time to be reconciling books when they could be involved in wider operational, managerial and strategic responsibilities. Signature Analytics does not do tax work or audits.
Signature Analytics can take over the entire financial reporting function, but it mostly has managed and trained existing staff as the host company grows, helping it establish or modify processes. It may have one or two people working with a client, never more than three or four. Signature Analytics bills by the hour at each level.
Heald describes the ideal relationship as a client uses them at appropriate levels until the client needs a full-time employee at each level. Early on a client might utilize a bookkeeper and an accountant. Once it has hired its own accountant, it might utilize Signature Analytics for controller and CFO duties. Heald calls it hiring up the pyramid.
The Strategic Level
“Over time the majority of our work has shifted from bookkeeping and accounting to operational analysis and consulting,” Heald said. “The need has shifted from beyond the numbers to a strategic level.”
Compiling better financial data is more easily put to use in optimizing the business. Kruger offered up an example of how Signature Analytics was able to show a local craft brewer that it had significantly higher per barrel costs, and much lower margins, for one variety than the rest of their beers. They were able to drill into the operation, find the inefficiencies and reduce the costs.
Kruger and Heald see plenty of opportunity for growth, not just in their expansion markets of Orange County and Los Angeles. A prime candidate for Signature Analytics services is a business owner looking to sell within five years. There is no shortage of those in any market.