This is why AI should not do your accounting

I'm gonna stop you. I I know rashly. So I don't know if you wanna start over since we just started.

Two E's, yeah. Rationally, yeah. No, no, you're you're good, you're good. I just didn't want to want it wanted to go too far before I said something.

Thank you, Micholas. pleasure to be here with you and thank you for giving me this opportunity.

man, The journey has been, I think, pretty interesting for me. it wasn't something that I necessarily set out to do. I just feel like I was just led to. so I started out in accounting a very long time ago. actually I took my first accounting class at 16 and apparently I was very good at it. So I kind of st mostly stuck with it, except for when I decided to major in marketing, despite my dad telling me to study accounting, because I was, I guess, rebelling, if you will. but then I ended up going back and getting my accounting degree. yeah, so always worked in accounting between accounting and internal audit and external audit, and then ultimately started my own firm. But really what what led me here was I think a series of just different events. It's going from a big corporate organization where I learnt a ton to a small startup where I learnt a ton, but in from a different perspective. And then seeing how essentially a lot of small businesses and startups, they don't really have the same kind of resources and capabilities that large corporations have. And I felt that in a way I felt that The things that I've learned and have acquired over the years could be very useful for smaller businesses. And it kind of gave me a little spark to want to do it on my own.

Well, unfortunately, a lot of startups and small businesses, there's a couple. So I guess it depends if there's startups like in the capital raising space, like technology or even life sciences or it it they the tendency is more along the lines of they're too early in their journey to be worrying about the accounting. They'll worry about that later. when they get to a point where they either need to raise capital or, you know, do something bigger. they want to wait until the very last minute, if you will. for smaller businesses, the local businesses, their tendency is more so how little can I pay in taxes? So they want the their their focus is more on on from that perspective. They don't really worry too much about whether things are being done correctly. it's more so the focus on how how little taxes can I pay? And it's two different misconceptions, I think, because the fundamental should be strong accounting, strong if you if you're not necessarily running your financials in a way that you can actually understand what's going on with your business, you're not gonna make the best decisions. And more importantly, you never know what's gonna come your way and when it's gonna come your way. And if you're not ready and you're now trying to scrap together to put your books together in a way that's gonna be useful for someone else, through diligence or something like that. then a lot of times you end up being in a situation where you're at a disadvantage. Either you can't capitalize on that or you get a nice little haircut on your on your on your price. So

Yeah, un unfortunately it is compliance. and you know what? I'm gonna be honest, like it shouldn't be something that business owners or founders should have to think about on the day to day. They should be running their businesses. They shouldn't be thinking about or the numbers being you know, like the the back end how the sausage is being made, if you will. they should just know that it's already made, it's already prepared. so I I can get it from one perspective. But the from the from the perspective of not wanting to be involved in it, right? They shouldn't necessarily be. But from the perspective of thinking it's not important at all, that's where I think the the the disconnect happens. because it is important. If you don't have the the fundamentals, then you're not gonna make good business decisions. You it's interesting though, because there are some people that actually do make decent decisions from a from a gut perspective, but it's not sustainable, it's not long term. You actually don't know why something is working and why this particular decision worked out that way for you because you don't have a basis or what you're starting from and you actually really don't know what's going on in the business. You're just going off of hunches. So

I think I so I have mixed feelings about AI. to be honest, I mostly like it, right? And yes, I I use it. I use it a lot for I think it's fantastic for research, for reading large amount of data, for helping with to synthesize things so that you can analyze them. I think it's I think it can be fantastic, right? and then there's a lot of menial tasks that It's if you're you're not it's not necessarily the best use of your time. So if you can delegate that to a tool that can take care of that for you, then yes, that's that those are the fantastic ways. I think AI is very, very useful, especially in finance. But where I have the issue with AI is the And it happens in accounting firms and it happens by the the business unit you business owners that are reading this information and making their own interpretations and thinking that you know suddenly for lack of a better word that AI is a is an accountant. so they when when the tool is used to essentially prepare financials. some cases it can, but a lot of times I've what I've from what I've seen, I've actually seen where I've I've received balance sheets and PNLs from from owners saying, hey, take a look at this. And the balance sheet literally does not balance. And AI prepared it. So I'm like, well, and that's a problem. Like if if your tool is doing that, then your tool isn't working. And so so those are some of the nuances. I I I see. it's when it's when a person relies too heavily on AI without actually checking the underlying data. And a lot of times it's not AI's fault. It's it's a tool. what it is, it's the context around. the the prompt that you gave it, right? So if if it if it it may do exactly what you said, but if it doesn't fully know the true story and how to really grasp what it what your the context around it, then it's going to tell you something, but it's garbage in, garbage out. and I think that's where it's it separates when if you know what you're doing, yes, use AI. If you don't know what you're doing, what you're doing, you probably shouldn't use AI. So

Which is where yeah. It will tell you with certainty, with with absolute certainty that this is it. And then when you catch it and then you tell it, Well, no, that's not right, then it'll say, you're right. So

Yeah, so actually what what I I'd focus less on financial projections, if you will, and forecasting. What my business is around and my practice is more so around building the financial infrastructure, right? So it's making sure that the underlying data that's supporting the financials is is accurate and that that the information can then be used to reliably make forecasts. Because if your if your base is for where you're starting your strategic decisions as a CFO, we're not a CFO advisory firm, isn't correct, then You're you're starting wrong, so you're not going to be able to strategically make the right decisions or forecast correctly because the underlying data is is for lack of a better word, garbage. So what we what we do is we're actually building the internal controls, the underlying processes and procedures to make sure that those numbers themselves are accurate and properly supported so that a CFO can then make those kind of decisions.

Yeah, so it depends on where the client is in their journey, but every conversation really basically starts with that, like getting an understanding of where the business is, what the business does, how it makes money, the that entire business model, its operating structure right now, like its org structure, how things are currently being done today. So we're always getting a a baseline there, and that's where we start. We build that profile for our our clients. then we also figure out where to. is that they're trying to go, what are their objectives? And so and then we essentially build a roadmap on okay well this is where you are this is where you want to be and this is how we're going to get you there. but within that process our focus is on looking at all of the the the I would say the financial assertions that would directly relate to your particular business based on what we've learned about what your business is, how it makes money, what the accounting rules are surrounding the say revenue recognition, and just in in different different aspects of it. I don't want to get too technical, but from that perspective, okay, what are the rules? rules from a gap perspective because everything we do is strictly is based on gap. How what is how does that relate to your business model? And we build our our processes around specifically around that. And so we're looking at the risk related to financial reporting. We're building the the controls related to that, to the different areas, and we're actually going in and we're executing on those as well.

No, absolutely not. That wouldn't be a good plan. So yeah, so that's a part of when we talk about the the journey, right? So initially we we figure that out. If someone comes to us and it's their plan to exit their business within three to five years, then that's a fantastic time. if they come to us and they don't necessarily plan to exit within three to five years, but they they they understand the importance of infrastructure and we're working with them on that way because we're constantly working with them and we're constantly having conversations with them, we are going to know, hey, at some point three to five years down the road, you are going to plan for an exit. So let's start shifting the the way we're doing some things specifically towards that. But essentially from the from the exit planning perspective, what we do is we're strictly on the accounting infrastructure side of things. And if you think about it, the I guess the most fundamental way is enterprise value is Ibita multiplied by some multiple, right? And the the organization can control both to to to some extent. they can control where they fall within the range of multiples depending on how great their processes are. and h or not so great their processes are. And they can control their their EBITDA depending on how well their business is actually functioning. The principle, the underlying principle in that is having strong processes and controls over your operations but also your over your financial reporting and so that you can actually understand your numbers so that once again you can Make better strategic decisions that will actually positively influence your your your EBITDA and your overall performance. And so that's how we connect the dots in terms of what we do for exit planning. But also the big thing, too, that's different about us compared to a traditional accounting firm that's not necessarily focused in this area is because we are accrual base, audit mindset, and everything that we do, we are actually. actually and and with the infrastructure that we're building, we are getting you to a point where when you're ready for diligence or audits or anything of that nature, you're already ready. Your data room's set up. everything is you're you're you're you're in that position where you can go through and not have to worry about your financial component being part of the bus the part of the del the diligence that fails. That won't happen. not with the way we're we're building it.

Yeah, I know that's that's a it's a great question. So what's next for R and B is we're continuing to build out this particular infrastructure. We've actually branded it internally. It's called FEOS Financial Information Operating System. So it's where we're We're we're building this in a way where it's scalable for us, so that we can actually bring what we're doing to more clients and to to more small businesses and hopefully to get the education across that it's it's really important to build the right way from day one and not try to back into it when you're at the point. because you just never know. You you Life happens for one thing. you never know when s one of the situations may occur when you may need to sell your business if that's, you know, a route. sometimes if you have the luxury, yeah, you can say, I wanna exit in in three to five years, but that may not always happen. You may not necessarily be in a position to plan that. Something may happen and you may need to sell your business tomorrow. are you ready? You know, so it's about being ready and not getting ready. And that's that's the part that I really want to to get businesses to understand. So it's more about so that's the that's really where we're headed. It's helping to educate businesses more.

you can find me on LinkedIn and also my website is easiest way is rnbcap.com.

All right, thank you. Pleasure being here.