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Blake Oliver: [00:00:19] Well, apparently, they didn't even talk. He didn't even talk with the client about what it would cost at the beginning. He presented his bill after the fact, and the client accepted it-

 

David Leary: [00:00:28] Which tells me they got a lot of value out of it, and they didn't put up a fuss. He undercharged it. He left value on the table.

 

Blake Oliver: [00:00:36] That's my feeling, too. Just because you can't think of a way to do a value-based bill for this doesn't mean that there isn't a way.

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Blake Oliver: [00:02:42] Welcome to The Cloud Accounting Podcast. I'm Blake Oliver. 

 

David Leary: [00:02:46] And I'm David Leary.

 

Blake Oliver: [00:02:47] So, David, after last week, I felt like we had so many stories, I said I would bring five stories today, and I think I have 25. I just can't do it. I can't cut it down enough. I'm going through my list, and I'm trying to highlight the ones that I do think are the top five. I've got the Intuit acquisition of TradeGecko. That's a big one. 

 

David Leary: [00:03:07] That's correct. That's a big one. 

 

Blake Oliver: [00:03:07] Rippling raised a ton of money. I've got an article in CPA Trendlines, an opinion piece - "When Time-Based Pricing Works." I don't know ... What do you got? 

 

David Leary: [00:03:17] A lot of smaller ap news. Different people did raises. Related, on the other side of Intuit's acquisition of TradeGecko, Webgility announced a partnership with QuickBooks Desktop, which I find was like, okay, here's a competing product, but in the Desktop space. What direction is the train headed here? That was a little confusing. 

 

Blake Oliver: [00:03:39] Well, I think we should then dig into app news. We are The Cloud Accounting Podcast, let's start with that, but first, we have a review, right?

 

David Leary: [00:03:45] We have two reviews.

 

Blake Oliver: [00:03:46] This is from Joe, via Apple Podcasts. Five Stars, Great content and timely on current events. "Great podcast with timely and relevant content for forward-thinking accountants. Much easier and better analysis, in my opinion, than reading weekly newsletters. Now, I can stay up to date on my morning walks." That's from Joe Harris. Joe, thanks for listening! Let's get to app news. Let's talk about TradeGecko and Intuit. Intuit has agreed to acquire TradeGecko for $80 million. David, you're the app expert. Seems like you know all of these 800 or so apps that are in the ecosystem now, especially in the QuickBooks Live world. So give us the rundown on TradeGecko, for those of us who are not familiar.

 

David Leary: [00:04:34] TradeGecko is an inventory app, but they really kind of specialized in more of that ecommerce level of inventory, where you have ... Nobody just opens an e-commerce website, or just only has an Amazon shop. They have an Amazon shop, an Etsy shop, something on BigCommerce. They have another thing over here ... Well, if you're selling T-shirts, and you sell one medium T-shirt, you've gotta have that updated in all your shopping carts across the whole interwebs.

 

Blake Oliver: [00:05:00] It could be like a handful or even dozens, right? I think the term for this is multichannel.

 

David Leary: [00:05:06] Multichannel, or omnichannel, yep, exactly. Sometimes, you even have your own brick-and-mortar, and you have to deal with that. It's something I think Intuit's wanted to get into for a while. I think they even made some attempts to build it themselves, but it's very hard to solve. It's crazy hard to solve.

 

Blake Oliver: [00:05:25] Right, because the inventory in QuickBooks Online has been always the number-one reason why people stick with Desktop. It's just not that great.

 

David Leary: [00:05:32] Yeah. There's a lot of reaction to this, and it was actually my reaction, as well ... I saw somebody tweet, "Oh, great, this is gonna QuickBooks Online finally get all the inventory features it needs ... People were saying that when they bought- there's an inventory app called Lettuce that QuickBooks bought.

 

Blake Oliver: [00:05:49] Yeah, whatever happened with that? 

 

David Leary: [00:05:52] How many years ago? The first QuickBooks Connect, they were already acquired by then, so it's going seven years, seven-and -a-half years ago? Seven years ago, they acquired Lettuce Apps, and I'm not really sure. I think some of the concepts or ideas maybe got integrated in, but I don't think it was ever like wrapped, or fully integrated. 

 

Blake Oliver: [00:06:10] It was never Lettuce-wrapped? 

 

David Leary: [00:06:11] Yeah, that's pretty funny.

 

Blake Oliver: [00:06:14] Thank you. Thank you. I'm here all weekend. 

 

David Leary: [00:06:16] On the other side, there was an article ... You just made the comment about people couldn't leave QuickBooks Desktop, right? 

 

Blake Oliver: [00:06:23] Right. 

 

David Leary: [00:06:23] Because the inventory is just so much deeper in QuickBooks Desktop. Webgility announced that they have a partnership with Intuit's Desktop QuickBooks point of sale, now.

 

Blake Oliver: [00:06:33] So, this is like a press release about their integration with QuickBooks Desktop?

 

David Leary: [00:06:36] Yeah, basically, it's a Desktop integration, but Webgility does basically what TradeGecko does. 

 

Blake Oliver: [00:06:41] Oh ... 

 

David Leary: [00:06:41] It's like, well, if Intuit's doing deals here on the Desktop side, I feel like it's confusing to the market. If you're Intuit, isn't your number-one goal, right now, to get everybody onto one platform - QuickBooks Online - and move them forward? 

 

Blake Oliver: [00:06:56] Yeah. 

 

David Leary: [00:06:56] So, it's strange that, over here, they're still doing this deals with Desktop because if you're using Desktop, and now you add on Webgility, why would you use QuickBooks Online with the new TradeGecko product?

 

Blake Oliver: [00:07:09] You can't get away from it. There's just too many users. 

 

David Leary: [00:07:13] Well, I think you just don't keep giving them carrots. If you put all the carrots on QuickBooks Online, people will eventually go there, but if you're on . But if but if you're on Desktop and they're being a stubborn horse, and you give them another carrot as a reason to not move, they're not gonna move.

 

Blake Oliver: [00:07:28] Yeah. 

 

David Leary: [00:07:28] People keep tossing them carrots when, really, just put the carrots on QuickBooks Online, and they'll come. 

 

Blake Oliver: [00:07:33] Well, that's what's happening, right? If they can successfully integrate TradeGecko, and the two founders are moving over to Intuit to work there ... If they can make it happen, they can build it into the product, then, yes, finally people will move, but if you don't get good inventory into Online that's as good as Enterprise, people aren't gonna move.

 

David Leary: [00:07:52] Yeah, and it'll be interesting how it gets integrated in because I know these enterprise-level inventory cloud packages ... I don't know what TradeGecko's pricing was, but they run $500 to $1,000 a month SaaS; these heavy-duty inventory packages. Will this get integrated into the UI, or is it gonna be more of ... You know, like when Intuit acquired the backup program, ChronoBooks? 

 

Blake Oliver: [00:08:16] Yes.

 

David Leary: [00:08:19] It's kind of like just an add-on. It's almost like they're taking a bunch of add-ons, and they're bundling it as a full-blown price. Is it gonna be a kind of a standalone app that gets all framed in, or is it going to actually be part of the actual QuickBooks Online code base? That is not clear.

 

Blake Oliver: [00:08:35] And is it going to be part of Advanced, or will it be part of Pro and the other editions? Because I saw another announcement about QuickBooks Online. QBOA Advanced is going to include Bill.com, the full functionality of it integrated into QBOA, which is interesting to me because, David, your company, Melio, is now the bill pay for, it seems like, all the other editions? Is that what's happening here is they're splitting it up?

 

David Leary: [00:09:00] That, I'm not very clear about because I think we're in QBO Advanced, as well; Melio is. 

 

Blake Oliver: [00:09:04] Yeah. 

 

David Leary: [00:09:04] I'm not totally clear on that. I saw that press release. I'm not totally understanding what that is. It's almost like- and even Xero when they bought Hubdoc. They're starting to integrate apps in, which makes you wonder, are we starting to see a closed ecosystem now versus the last six to eight years? Even when I was at Intuit, we were building an open ecosystem- 

 

Blake Oliver: [00:09:22] Right. 

 

David Leary: [00:09:22] -to where apps starting to be purchased or functionality is being built into the accounting software. Or, is it where things are gonna be built in but there's still gonna be multiple players? It really feels like things are in transition from the previous model of the last six to eight years, where it was QuickBooks Online and just add-ons.

 

Blake Oliver: [00:09:41] Yeah, we'll see.

 

David Leary: [00:09:42] It's getting gray. 

 

Blake Oliver: [00:09:43] Well, people need help, so I think that's what this is designed to do, is just give people a solution. I mean, hopefully, they won't eliminate the other options. Small business owners who are making these decisions on what to integrate, they don't have enough advice. Accountants aren't giving it to them. There's not enough accounting firms and consultants doing this kind of work, so it's up to Intuit to say, "These are the default apps you need to integrate, and we are gonna do it for you. It's all gonna be set up. You can go use other ones if you want, but here's the ones that we partner with and we recommend."

 

David Leary: [00:10:14] Yeah, just out of the box, this is what you get. I guess we'll find out because it definitely feels like the pendulum is swinging towards build it all in-house again and acquire a bunch of things. I've seen this pendulum. Companies do that, then they realize, "We're not really good at all these other things. Let's spin them off again and let somebody else who's really good at it build it separately." It'll just be interesting to see how this iterates through over the next 12 to 24 months. Now, the price on that, that was being reported, was $80 million - that acquisition price.

 

Blake Oliver: [00:10:43] Mm-hmm. 

 

David Leary: [00:10:43] Remember last week, when we talked about OnDeck, and they got acquired for $90 million?

 

Blake Oliver: [00:10:50] Yeah, one of those online loan companies. 

 

David Leary: [00:10:52] Online loan company ... Kabbage, which is a competitor to OnDeck, they are they might be seeking a sale. They think they want up to a billion dollars. We talked about Kabbage had a little rough time with the downturn. They laid off like 600 employees. What Kabbage did  ... Kabbage exploded. They really did a good job partnering with the community banks, and they helped 270,000 applicants get $6.5 billion in PPP loans. So, they got a piece of that action.

 

Blake Oliver: [00:11:19] Right. 

 

David Leary: [00:11:19] But, the bump, they're saying, could just be a one-time thing because it may not be sustainable, because Kabbage apparently hasn't resumed handling non-PPP loans.

 

Blake Oliver: [00:11:29] Interesting.

 

David Leary: [00:11:29] Their core function- I know they spun up that little small business bank thing they're trying to get off the ground, but their core function of giving just normal small business loans, they're not in that business right now. It kind of feels like if OnDeck was only sold for $90 million, is Kabbage really gonna get a billion? Either OnDeck was completely undervalued and sold for nothing ... I think you said even like two years before, OnDeck's value was $2 billion, I think you said last week?

 

Blake Oliver: [00:11:59] All these valuations, it's just investors put in a slice of money and then that creates the valuation for the company. It's imaginary ... 

 

David Leary: [00:12:10] It only matters if it's the last one [crosstalk] 

 

Blake Oliver: [00:12:10] Right, exactly. It only matters if you go public or you get acquired. So, yeah ... 

 

David Leary: [00:12:15] It'll be interesting to see where this goes ... We kind of talked about this; some of these loan ... The balance sheets were looking weird or bad for these guys. You're starting to see either consolidation now, or you're gonna start seeing them sell. I'm wondering where Kabbage can land.

 

Blake Oliver: [00:12:30] Yeah, I mean, Kabbage ... I don't have the numbers in front of me, but they made a lot of PPP loans. Now, they have, basically, a ton of new customers that they could sell to. I think that's the value is whoever acquires them now has this group of people who are depending on Kabbage for this loan forgiveness application, and maybe they're gonna be paying back the loan over time, or a portion of the loan over time. That's a big opportunity, and Kabbage showed that it could pivot.

 

David Leary: [00:12:54] Yeah, I guess you're right. If half of all small businesses go under because of COVID, of those 270,000, that's still what, 140,000, 135,000 small businesses that they now have a relationship with. Can they move them to their bank offering, or whatever it might be? 

 

Blake Oliver: [00:13:09] The ones that got these PPP loans are much more likely to stay afloat than the ones that didn't, so it's a good group of customers, probably. Speaking of crazy valuations, Rippling raised $145 million in their Series B at a $1.35 billion valuation. David, I'm gonna do it again to you. Do you mind explaining what Rippling does?

 

David Leary: [00:13:33] Rippling is - in the short, easiest answer - a payroll app, but not really just payroll. Rippling, the theory is ripples. So, when you hire an employee, that's the thing, when you put them into your payroll system, that should trigger everything else. So, if I'm gonna hire ... I'm a slightly bigger company. That's who this is gonna be for. It's not a small business. I'm a slightly bigger company, Blake, and I'm gonna hire you. As soon as I put you into the payroll system, it's automatically gonna issue your new laptop; it's automatically gonna set you up on Google Apps, and the other 500 things I might be doing in my company, and it's gonna onboard you to all the other processes that's necessary to onboard an employee. That's the genesis of it. Now, what's interesting about Rippling is the founder is the former founder of Zenefits.

 

Blake Oliver: [00:14:19] Yes. Parker Conrad, is it?

 

David Leary: [00:14:22] Yes. This is his second unicorn because Zenefits quickly became a unicorn, and then had its drama.

 

Blake Oliver: [00:14:31] Rippling is following a similar trajectory. $145 million for a Series B is just enormous. I found an article with some stats from a podcast interview in April. Nathan Latka's podcast is very popular among startup founders. And when you go on that show, you have to reveal some information about your company. You can't just talk in generalities. You have to actually-

 

David Leary: [00:14:54] People pitch, right? They're always pitching their ... 

 

Blake Oliver: [00:14:56] Yeah. So, Rippling, in April, said it had 2,000 customers paying an average of $700 per month. I did the simple math and that comes out to $1.4 million in monthly recurring revenue, which is $16.8 million in annual recurring revenue. So, at a valuation of $1.35 billion, that is 80 times their annual earnings, right now. That is a pretty substantial multiple to raise money at, but clearly, the investors believe in Parker Conrad, and his CTO, who also was at Zenefits. They said that they are quickly on their way to doubling that $16.8 million and ARR, heading to like $35 million, which is impressive. If they can actually do that in this downturn, that's a really good sign.

 

David Leary: [00:15:47] My observation is he's running this differently than Zenefits. Zenefits came on. They were the fastest growing SaaS company since Salesforce. They were making this claim everywhere. They were very salespeople heavy, so their culture was sales, sales, sales. They had people lying to pass the insurance exams. It just spun out of control ... Zenefits is still around, but in a way, they were there too heavily weighted with salespeople, and marketing, and not actual engineers. It feels like, if I look at Rippling, what they've built, the amount of function- there's a lot of functionality and it's almost like they learned their lesson, and now they're investing ... The ratio of engineers and product that's being created versus sales feels like it's completely different. There's more of a real meatier product here.

 

Blake Oliver: [00:16:35] It's a really unique approach to payroll/HR in that they're designing a payroll/HR information system. I guess that's the technical term for it is HRIS - Human Resources Information System - where this is everything about your employees; not just how much they make for payroll purposes, but also everything else you need to do to onboard them and then execute those workflows through integrations with other applications. 

 

[00:17:04] Like you said, when I hire Blake, on his first day, automatically provision him a Google Apps account; automatically put him in Okta; automatically add him to Bill.com, or Xero, or all of my other apps. This was a problem for me, as a cloud accounting practice owner. When I got a new bookkeeper on staff, I had to add them to like 12 different apps, and it took my entire morning. 

 

David Leary: [00:17:27] I'm assuming the opposite is true, that like when you get rid of an employee, it unripples all of that back, in theory.

 

Blake Oliver: [00:17:34] Yeah, I would hope so, because that's also a huge problem. I ran into this actually when I was working at a big firm. We had bookkeepers who still had access to Bill.com after they left, six months later. They could have theoretically logged in because it wasn't a single sign on kind of situation if they knew their password. Just total security holes. Yeah, it's really cool. They're a very unique business. You can see other companies have started to copy them. Gusto has added in some of this functionality now, where you can provision email accounts as soon as folks are hired. That, to me, indicates that they are onto something here.

 

David Leary: [00:18:11] Yeah. They're merging together the IT department with the HR department.

 

Blake Oliver: [00:18:14] Apologies to any IT folks listening, but we wanna get rid of you. Accounting firms do not want IT people. 

 

David Leary: [00:18:23] There goes a whole section of audience [inaudible]. 

 

Blake Oliver: [00:18:28] Hey, let's continue on. I've got a few more things here.

 

David Leary: [00:18:30] Yeah, I've got some teeny app news, as well; just a couple small one. 

 

Blake Oliver: [00:18:32] Well, here's a big one, though, because we were talking about Intuit. Intuit is now under investigation by the Department of Justice for their takeover of Credit Karma. That's according to PYMNTS.com. Listeners may recall, as we talked about on the podcast - I think it was a few months ago - Intuit agreed to pay $7.1 billion to purchase Credit Karma, the free credit report app that does a whole lot more. You give it your information, it gives you your credit report, and then it also sells you a bunch of credit cards and all this stuff. It's actually really cool. I've used it to get my credit report for free. 

 

[00:19:09] Apparently, concerns have been raised within the Department of Justice that this is anti-competitive because Credit Karma also started doing taxes for free. That was an existential threat to TurboTax, because why would you pay to do your taxes when you could do them completely for free? That's really all the news there is, is that the investigation is open. It will probably take a while. It could get unwound. They may stop it, and it probably depends on who's president.

 

David Leary: [00:19:37] Yeah. It could also depend on how ... I mean, in the grand scheme of the whole tax space, Intuit doesn't have a monopoly power. There's tons of ... They're gonna be able to probably argue that there's tons of competitive options out there.

 

Blake Oliver: [00:19:51] I'm curious about that. What is the market share of TurboTax? Because I know they are just absolutely gigantic. I found it. I love Google. TurboTax has 67 percent of the market; two-thirds of the market.

 

David Leary: [00:20:03] I wonder if that's just for paid products or third-party products? Not versus all tax returns filed.

 

Blake Oliver: [00:20:09] Credit Karma's market share is only three percent but growing fast. So, to me, this kind of looks a lot like Facebook's acquisition of Instagram many years ago, where Instagram was very small and Facebook bought it for, what, a billion dollars? The argument that Facebook has made - that Mark Zuckerberg has made - is, "Oh, it wasn't anti-competitive because they were so small. We didn't know that they would end up being so important to our business." Look, you'd be kind of stupid not to do this. If you were Intuit, and you have this threat coming, why wouldn't you extinguish it when you could?

 

David Leary: [00:20:42] The market share thing ... You have to look at all tax returns, I think. It's the same thing with QuickBooks. Yes, QuickBooks Desktop dominated in the late '90s, 2000s. I think QuickBooks Desktop, at one time, was pushing 92 percent market share, but, at best, they only had 25 percent of small businesses. Everybody else was still doing pens and papers.

 

Blake Oliver: [00:21:00] Right, right, right. 

 

David Leary: [00:21:00] Do they have 60 percent of just like paid or free returns, or is it they're only doing 45-50 million of all the tax returns that are filed? There's plenty of options and competition out there. I don't know ... They have to look into it. They should be looking at all these major acquisitions like this, ultimately, for the consumer. I have something interesting on Jobber. Jobber, they are ... Think like lawn-mower guys, snow-plow drivers, those type services - really small field-service type jobs; maybe a pool guy.

 

Blake Oliver: [00:21:35] Mm-hmm. 

 

David Leary: [00:21:35] Jobber is software for that, but they have gotten a deal with Stripe, and they're gonna offer real-time access to funds. Your pool guy comes over, and now he's got to go to Home Depot and buy chlorine to do your pool, or whatever he needs to do - those pool supplies. He'll charge you through Jobber, and they're using Stripe, and it's gonna be in his bank account in seconds, even on non-business days.

 

Blake Oliver: [00:21:59] So, all this real-time deposits thing is getting bigger and bigger because we were just talking about this last episode.

 

David Leary: [00:22:04] Yeah, which is huge, if you think about it from the use case for a contractor-

 

Blake Oliver: [00:22:08] Oh yeah.

 

David Leary: [00:22:09] -who's just doing these small jobs by jobs ... They can't float customers. You can't float a customer, especially if it's a one-time job, and they may not pay you later on, and you just bought the supplies for their job. I think it's a big announcement, from the spirit of it, of what this means for contractors.

 

Blake Oliver: [00:22:25] So, as I think you can infer just from our discussion here, the cloud is doing really, really well in the pandemic. The fact that Rippling was able to raise all this money in the middle of the pandemic, that TradeGecko is getting acquired, cloud is doing great. We got some numbers in a big-picture sense, from the Wall Street Journal. Cloud spending worldwide is up to $34.6 billion ... $34.6 billion on cloud technology worldwide among all types of businesses. That is 11 percent higher than last quarter, and 30 percent higher than the previous year.

 

[00:23:03] This is one of those areas that is doing really well. It's obvious, of course ... We're all working from home. We can't go to the office. We can't sit around and maintain servers. It just has to happen. Now, one company, though, that didn't do so great is Rackspace. Are you familiar with Rackspace? They kind of have declined in recent years, but former competitor to Amazon for webhosting, I think Xero used to be on Rackspace, and then they migrated over to Amazon Web Services. Ring a bell?

 

David Leary: [00:23:31] Yeah, because I want to ... Basically, I'm renting a machine from them, if you wanna call it that, but I'm responsible for putting the software on that machine, spinning it up, maintaining it.

 

Blake Oliver: [00:23:42] I can run a virtual server, or I can actually have a full server. They had an IPO. This is actually their second IPO. I guess they had an IPO, years ago. They went private. Now, they're back going public. They had priced their shares at like $20 or something, and they fell 20 percent, right away. They started at $21 on Tuesday, and they fell down to $16.85 on Wednesday. What's crazy is how much debt they have. They were taken private by Apollo Global Management in 2016 - a deal valued at $4.3 billion - and they currently now have $3.9 billion in debt. 

 

[00:24:23] This is like one of those classic private equity deals, where the private equity firm borrows billions of dollars, buys a public company, takes them private, and then, supposedly fixes them up, and then sells them back onto the public market, but with all this debt. Rackspace's revenue is ... What is it? It is expected to be between $655 million and $657 million in the second quarter. They have a lot of debt for their revenue, even if they're making like, let's say, $650 million per quarter ... That's, what, like $2.6 billion? Their debt is greater than their total annual revenue.

 

David Leary: [00:25:07] It sounds a lot like the Hertz thing. We haven't talked about it on the podcast, but if you've been following the Hertz, they kind of ran this game - somebody buys them, they take on more debt ... It goes back to what you were talking about modern monetary theory. The money is so cheap that it's just easy for big companies like Hertz just to keep taking more of it, and they just keep taking so much debt.

 

Blake Oliver: [00:25:26] And for private equity firms to do this kind of stuff, right? Because it's very easy for them to raise the billions of dollars to do these private equity deals. So, kind of meta, because this is about a hosting company, but I think relevant to the whole cloud-computing discussion. 
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Blake Oliver: [00:26:58] One last story here before we wrap things up-

 

David Leary: [00:27:01] And I have one, too, so we have two last stories. 

 

Blake Oliver: [00:27:03] Two last stories, here. Square had amazing results. They posted $1.92 billion in revenue, which is a 64-percent increase in total revenue, year over year, in its Q2 earnings. Now, one piece that's really interesting about that, a ton of that revenue - 45 percent of their total revenue - was from bitcoin transactions. So, the Square Cash app- David, you've talked about this on the show.

 

David Leary: [00:27:29] Yeah.

 

Blake Oliver: [00:27:29] You can transact in bitcoin on the Cash app. You can use your Cash app balance to purchase bitcoin; you can transfer it to people; you can convert it back into cash. Every time you do that, Square earns around 1.75 percent. So, the more bitcoin that is going on, the easier they make it, the more they make, just like with credit card transactions. It has really, really, really paid off. It was only five percent of their total revenue in Q1 of 2018; now it's 45 percent.

 

David Leary: [00:27:58] I think I heard that. In their conference call with investors, they actually have talked about how they're going to start really pushing their Cash card, or their Square Cash accounts, towards small business owners now. Right now, it's been really kind of consumer-facing a little bit [crosstalk] Now, they're really gonna start pushing it at the small business year, which obviously, they already have. Following Intuit's announcement last week, it really makes sense that they're ... You're gonna take advantage of that press cycle, right? If QuickBooks is creating a product, call it QuickBooks Cash, and Intuit'll spend millions getting it out there to everybody's vernacular, then Square should just ride that wave.

 

Blake Oliver: [00:28:35] Oh, I hope so. I hope so. We have finally gotten to the point where every service provider in our household - gardener, pool guy, housekeeper - everybody is charging us with an app. Now, it's not all the same app, but it's all an app. I never have to write a check anymore. I'm just- I'm so happy. I hope that the whole world goes this direction.

 

David Leary: [00:28:55] Yeah. I'm still writing two checks a month for [crosstalk] So, obviously, we talked about ScaleFactor a couple weeks ago - this whole concept, these accounting firms with engineers.

 

Blake Oliver: [00:29:05] Yes.

 

David Leary: [00:29:05] There's another app called Proper, and it's property management for apartment complexes, things like that. Property managers/property owners can use this. It's an AI-powered accounting and bookkeeping service. 

 

Blake Oliver: [00:29:19] Is this Proper.ai? Am I looking at the right site here? This says, "We manage the books. You manage the property."

 

David Leary: [00:29:23] Yes. The headline is: "Proper raises $4.8 million to become the Uber of property accounting." It's got all the keywords for a raise, right? The word Uber in there; you've got "AI-powered." 

 

Blake Oliver: [00:29:34] Oh, yeah, the headline on the website: "Our financial experts use machine learning technology to provide accurate, reliable, flexibly priced accounting and bookkeeping services." 

 

David Leary: [00:29:45] It's interesting, because they're not trying to eliminate ... They're trying, from a cost perspective. They say they're using artificial intelligence and machine learning technology to offer scalable accounting, and bookkeeping services more efficiently and cost effectively than traditional in-house. 

 

Blake Oliver: [00:29:57] Right. 

 

David Leary: [00:29:57] Which is probably true. If you have two or three huge apartment complexes, and you're trying to do all the bookkeeping in-house, it does make sense. Really, the more I think about this whole march to automate all of accounting, I think it's very hard unless you're kind of niche.

 

Blake Oliver: [00:30:13] Mm-hmm. 

 

David Leary: [00:30:13] Because they're only handling apartment complexes. There's gonna be a set of limited use cases, and there's probably a set of limited tools, like everybody uses the same thing to log their rents, or, I don't know, to run their promotions and some ads. 

 

Blake Oliver: [00:30:27] Well, just as simple as the chart of accounts ... You can actually have a standardized chart of accounts that is the same for every single user, and it will work, and it will make sense. Whereas, with a generalized bookkeeping service, you try to do that and, inevitably, the reports are kind of meaningless because they're not customized to the business.

 

David Leary: [00:30:45] They were founded in 2017. The other part that caught my eye in this article was Proper has 40 customers.

 

Blake Oliver: [00:30:55] How much money did they raise with 40 customers? 

 

David Leary: [00:30:56] $4.8 million. Now, obviously, these customers are probably bigger, and high end, because some of them range from either 250 units to 10,000 units across the U.S., and really, their target demographic is property managers with 200 to 10,000 units. That's a lot of money to raise. Basically, it's an accounting firm with 40 clients. Now, high-end clients, but ...

 

Blake Oliver: [00:31:25] Well, so it kind of makes sense because they're bigger clients. They're probably paying like tens of thousands of dollars a month for this sort of bookkeeping- 

 

David Leary: [00:31:33] You're on their website, right now, right? 

 

Blake Oliver: [00:31:34] Yeah, I'm trying to- I'm looking around.

 

David Leary: [00:31:37] There's no pricing. Yes, it's probably $10,000 a month [crosstalk] 

 

Blake Oliver: [00:31:41] They don't have pricing on their website, which means that it's ... Yeah, it's gonna be in that five-figures realm, most likely. So, I can see this actually happening. 4.8 is not crazy to raise for that kind of product market fit. This is a good sign that this is doable. Maybe this will be the success in accounting firms with engineers.

 

David Leary: [00:32:06] There's a quote from a Proper customer, Rusty Heyman. He has a great quote. The reason I love this quote is because I feel like ... Sometimes, I've always felt like small businesses understand automation and understand logical things, like, if I type my name and address here, why doesn't it just show up in all the other apps automatically? They get it, at some level - their expectation of APIs, just things working and data moving places automatically.

 

Blake Oliver: [00:32:31] Mm-hmm. 

 

David Leary: [00:32:31] So, he has a great quote here. He says, "Property management is a low-margin, high-volume business. All these companies who are not using some sort of AI for routine tasks will be left behind."

 

Blake Oliver: [00:32:41] There's this big disconnect between what thought leaders are putting out there about AI, and natural language processing, and voice assistance, and chatbots, and whatnot, and what business owners actually need. There's this huge gap that we still have to fill, when it comes to actually just giving them the information they need and then also integrating all their apps together. I think that's the biggest problem is the lack of integrations. This is probably why Rippling is doing so well, is we all want everything just to happen. We don't wanna key in data multiple places. This is not something that requires artificial intelligence to do; it just requires workflow and integration.

 

David Leary: [00:33:17] I agree. We've hit ... Two of the biggest tools we use to get the podcast out the door, we use Zencastr, and we use Transistor.FM. Both of them, I've been hitting up for a year - "When are you gonna have integrations to Zapier?" It doesn't seem like much, but it would be nice if I could just trigger the podcast to be set up, so we just walk in and record, and then trigger links and things back over to Transistor, but it's not there. The expectation- I want them to all work together. A lot of times, it's me, copying and pasting, over and over and over again.

 

Blake Oliver: [00:33:49] So, I lied. David, I have one more tech story.

 

David Leary: [00:33:52] Another app story? Okay. 

 

Blake Oliver: [00:33:53] This is actually a fun story. It's not like a cloud accounting app story, but it is about Microsoft Excel. This was in The Verge. The headline is: "Scientists rename human genes to stop Microsoft Excel from misreading them as dates." There are many human genes in the human genome, and 27 of them had names that looked, to Excel, like dates. A good example is MAR1.

 

David Leary: [00:34:21] Ok, I gotcha. Now, I'm following. Got it. 

 

Blake Oliver: [00:34:23] There's a gene called MAR1, or it used to be called that. If you type that into Excel, Excel automatically converts that into the date, March 1. This apparently has been causing problems for years, where researchers would be typing in this information. Excel would automatically convert that column to a date-type field, and there's no way to turn this off. It doesn't exist in Excel.

 

David Leary: [00:34:47] You'd be screaming, right? You'd be cussing and screaming [crosstalk] 

 

Blake Oliver: [00:34:49] Right, because it screws up all of your data. Even if you do it correctly, and then, let's say you export your data set into a CSV file, and somebody reimports it into Excel, Excel will automatically format all those cells as dates. So, it's been causing lots of issues. 

 

David Leary: [00:35:05] Even if you format the whole column to just plain text, and then, not [crosstalk] 

 

Blake Oliver: [00:35:08] A CSV file is just plain text [crosstalk] formatting information ... Because CSV is the ultimate open database because it's just text. Out of 3,579  published papers, roughly one-fifth had been affected by Excel errors and caused by this sort of problem. Rather than try to get Microsoft to fix it, I guess ... I didn't dig into this to find out if they even tried. They simply decided to rename the genome. 27 human genes have been renamed so that they don't conflict with Microsoft Excel. To me, this just shows you the power of Excel in our world that the DNA that makes up you and me, David, has been renamed by Microsoft Excel, in essence. 

 

David Leary: [00:35:56] A lot of times, you'll see this in software. For decades, some software will have some dumb warning that comes up, and people will just retrain their bodies, and retrain themselves to work around this bad UI design. This is the ultimate ... They're just hat are completely working around an Excel problem by completely renaming their data, which is insane. It's the ultimate workaround. Did Microsoft pay to have these genomes renamed? This a marketing opportunity, right? 

 

Blake Oliver: [00:36:29] I know, right? 

 

David Leary: [00:36:29] It could have been the Microsoft genome. They could've sold this to all the tech companies.

 

Blake Oliver: [00:36:33] Yeah, exactly. It should be an add-on, right? An add-on that you have to purchase for thousands of dollars that prevents this from happening. 

 

David Leary: [00:36:39] Well, no, not that. I mean, if you're trying to fund your project, and you're gonna rename one of the genomes, sell the naming rights.

 

Blake Oliver: [00:36:47] All right, so what do you wanna talk about next?

 

David Leary: [00:36:50] You know what we could talk about quickly is conferences. Visit that quickly.

 

Blake Oliver: [00:36:53] Yeah. 

 

David Leary: [00:36:53] So, Scaling New Heights has been moved. Scaling New Heights originally was in June; then it was moved to September 20-23; now, it's been moved to November 8-11, and that's gonna take place in Orlando, Florida.

 

Blake Oliver: [00:37:07] You wanna make a bet? I bet you $100 it gets canceled. It does not happen in person.

 

David Leary: [00:37:14] Things are not ... Now that my kids are starting school tomorrow, there is no sign that they're actually gonna go back in person. It's not that I'm becoming hopeless, it's just- it feels like there's no light at the end of the tunnel yet in this, at all.

 

Blake Oliver: [00:37:28] Yeah. 

 

David Leary: [00:37:28] You're right, how can you have an in-person event if there's not any light at the end of the tunnel on this?

 

Blake Oliver: [00:37:35] Until there's a vaccine, I don't think these events resume, and that's gonna take until early 2021. Then, it's gonna take months, and months, and months for even tens of millions of doses to get out to people. I'm concerned about next year's conference season. I don't know if- maybe in the fall, we'll get it, but it all depends on how opening up the schools goes. Does that create a huge surge in infections? We're really only ... I think, what, like 10 to 20 percent of the US population has been infected at this point? We've got to get to 60 percent before we have herd immunity; that's the worst-case scenario, 60 percent. That could take years.

 

[00:38:18] But the good news is there are like hundreds of vaccines in development. With that many shots on goal - I think Fauci uses that analogy - it's very likely that one or actually dozens could work. So, I'm optimistic for next year, it starting to become less of a problem. Then, by 2022, we're back to normal. I mean, that would be ... Is that too long? I hope that's not depressing. 

 

David Leary: [00:38:42] It is, a little bit. I really miss everybody.

 

Blake Oliver: [00:38:44] Sorry, David. 

 

David Leary: [00:38:44] On the other hand, Xero, who canceled all their Xerocons that they had planned for 2020, across the world, they've started something new. It's gonna happen this September 14-17. It's called a Xero On Air. Right now, it looks like it's just a couple Xero leaders that are gonna do some sort of speech or keynote/webinar type thing. It doesn't feel like it's very conference-like, so it'll be interesting to see how that rolls through. Speaking of conferences, weren't you gonna do some sort of virtual conference? How'd that go?

 

Blake Oliver: [00:39:16] Yeah, well, that's starting today. It's Sunday, August 9, as we record, and the Boomer Virtual Summit, Boomer Consulting Virtual Summit, is starting this evening with a happy hour on their virtual platform. I'm going to have a drink at my desk, and I'm going to be on the 3-D virtual platform, which looks a lot like Second Life. We'll see what happens. I'll be hanging out at the booth. Hopefully, this episode will get out in time for any folks to hear it who are gonna be at the conference. If you are, come stop by the Jirav booth and let's chat. It'll be fun.

 

David Leary: [00:39:50] Can you get me a guest ticket or a guest pass? I'd like to just click in and experience the virtual world there. 

 

Blake Oliver: [00:39:56] You know what? I'll see what I can do, yeah. 

 

David Leary: [00:39:59] Okay. 

 

Blake Oliver: [00:39:59] It'll be cool-

 

David Leary: [00:39:59] Can I make my own avatar? 

 

Blake Oliver: [00:39:59] Could we have a booth and record The Cloud Accounting Podcast like we used to do at the conference?

 

David Leary: [00:40:05] At the conferences ... Can I walk around with a Cloud Accounting Podcast T-shirt? Is this possible?

 

Blake Oliver: [00:40:10] You cannot customize your avatar to that extent, unfortunately; at least I'm not aware of how to do it [crosstalk] 

 

David Leary: [00:40:17] Oh, side note, speaking of the Cloud Accounting Podcast T-shirt, my daughter got her yearbook, finally; because of COVID, it took months to get these things distributed out. One of the photos in there, she's wearing a Cloud Accounting Podcast T-shirt in her yearbook. It's awesome. 

 

Blake Oliver: [00:40:28] That's amazing. You've gotta take a picture of that and post it on the Instagram account. 

 

David Leary: [00:40:30] All right, I will. 

 

Blake Oliver: [00:40:33] All right, so let's talk about hourly pricing, hourly billing, I should say. This story has been sitting with me for weeks. This was a byline by Ed Mendlowitz, who is someone that I actually really admire. He's like a traditional old school ... I hope he wouldn't mind if I said that, but I think he would actually agree with me ... Old-school accounting firm partner. He writes prolifically in Accounting Today, and CPA Trendlines about everything he knows and has learned over his career. 

 

David Leary: [00:41:04] He runs that meetup in New York City that- it's like a mixer, but it doesn't look like a mixer. It looks like this old secret-

 

Blake Oliver: [00:41:12] Society? 

 

David Leary: [00:41:12] -you better know the right handshake to get in there type of a thing. Yeah. 

 

Blake Oliver: [00:41:15] See, that sounds kind of awesome, actually. I would love to eventually get to meet him; I've been following him for a long time. He wrote an article on CPA Trendlines called: "When Time-Based Pricing Works." So, as you can imagine, this is controversial among folks who believe in value billing- 

 

David Leary: [00:41:32] They're subscription now, yeah. 

 

Blake Oliver: [00:41:33] There's a huge group of accountants, and even bookkeepers who really, really believe in time-based pricing, and the vast majority of large firms still do time-based billing. So, let's talk about this. This is a story that Ed tells- an example of his early career, when he felt that there was no way that he could have done time-based billing and made it work. This is an example of when time-based pricing works, and you couldn't do a fixed fee, I suppose.

 

[00:42:05] It goes way back to 1980. Ed got a large client. The client actually was on a fixed annual fee to start to cover routine work, but then, after three months, he was asked to suggest some methods of compensating highly paid managers and present them at a meeting in two weeks. So, he has to do this special project. When he showed up for that meeting to present his initial recommendations, there were four other people who'd be given the same assignment. He didn't know it, but he was in competition. He ended up winning, and he was asked to go to the meeting of highly paid managers for this company.

 

[00:42:39] He ended up spending many days at this conference, this company meeting; made his recommendations; it was a huge success. He apparently got a standing ovation after his presentation at this California resort with the management group with about 50 people. He said, "Considering everything I did - the time requirements, my needing to drop everything to attend this project, the trip, the drawing on every morsel of experience I had - I do not know how I could have set fixed fees in advance for each facet of the project. 

 

[00:43:05] In retrospect, if I had quoted a fee for the initial proposal knowing the client, he probably would have told me to skip it because he already had other people working on it. Once I started, there were defined projects at each step of the way, but they were all part of the overall goal of presenting it to the management group in California." He finishes by saying, "To this day, I don't know how I would have been able to set fees in advance for each of the many things I did. At the end of the day, the client felt the value was there and I was fairly compensated." This ended up being one of his biggest clients over many, many years. I wanted to get your impression of this, David. Is this an example of when time-based pricing worked?

 

David Leary: [00:43:41] What I don't like about this example is it's on the premise that he got the job; because if one of the other people that were competing for this work possibly provided a quote to the customer that was value-based, they might have got the job. He's saying how right he was, using hourly, because everybody he was competing with was using hourly. If somebody would have, out of the gate ... Even if his idea was slightly better- maybe it wasn't better. Maybe they were all equal. I don't know. We don't have insight to this. Maybe he underquoted. Maybe his hourly rate was cheaper, and that's how he really got picked. I think it's an argument- he's trying to say how this job was saved by the hourly rate, and I just don't know if that's true.

 

Blake Oliver: [00:44:26] Well, apparently, they didn't even talk. He didn't even talk with the client about what it would cost at the beginning. He presented his bill after the fact, and the client accepted it-

 

David Leary: [00:44:39] Which tells me they got a lot of value out of it, and they didn't put up a fuss. He undercharged it. He left value on the table.

 

Blake Oliver: [00:44:26] That's my feeling, too. Just because you can't think of a way to do a value-based bill for this doesn't mean that there isn't a way. Yeah, he probably left money on the table if the client didn't complain about the bill. That's for one thing. So, I was trying to think, how could I, if I were in Ed's shoes, have done this. Look at the project. The project was to come up with a plan for how to compensate highly paid employees - a compensation plan for this company. There were like 50 people there; so probably several dozen highly compensated employees. What is the goal of one of those plans? It's to incentivize them to generate revenue for the company, to generate profits for the company-

 

David Leary: [00:45:29] And to keep the employees there, as well.

 

Blake Oliver: [00:45:32] To keep the employees happy. Maybe, one way, if you don't know how to price something, is to have a conversation with the client and say, "Hey, what is this worth to you? What would be the impact of a plan that works spectacularly well to motivate your employees?" and actually talk through that with them. "What are you looking to do? What are your goals out of this project?" I don't know if that happened, but it doesn't sound like it did. Once you know the goals of the client, then you can start to attach value to the outcomes.

 

[00:46:04] If the client's goal is to increase revenue by, I don't know, $10 million a year, then I, as the consultant, could say, "Well, let's say that I design a compensation plan that helps you do that. What is that worth to you? Would you pay me $100,000 to increase your revenue by $10 million?" The way that I would structure that is to say, "I'm not just gonna create the plan; I am then going to, throughout the year, make sure that the plan is working and help you adjust the plan if it isn't." Now, it's a long-term consulting arrangement around making sure that this compensation plan is acceptable to the employees and is successful in helping grow profits or revenue, and you make that a proportion of the outcome.

 

David Leary: [00:46:47] I think it's an easy sell because it gives you a stake in the game because, now, you actually care. Your money is gonna depend on how successful this program is or not. If you're just getting paid hourly, it doesn't matter if it's successful, you're still gonna send them a bill, and they're still gonna pay you.

 

Blake Oliver: [00:47:02] Let's say that Ed spent a week on this because it sounds like he went there for a few days, probably took days to put this together. I don't know what his billing rate was at the time, but let's say it was really high, in today's dollars. What would be a high rate for an accounting firm partner? Like $500, maybe even $1,000 per hour? Let's say it was $500. That would be- $500 times 40 is $20,000. If you bill hourly for a week of your time, that's the most you can make.

 

[00:47:33] We just said it could have been $100,000. It could have been much more than that, depending on the success of the company. That's the money that's being left on the table there. That's just one idea. I'm curious what our listeners think, how they might have structured it. While I was thinking about this story, I also saw a story about McKinsey in ProPublica. McKinsey is the giant consulting firm that famously does not bill by the hour. They instead bill by the week, apparently; that's what I learned in this ProPublica article. 

 

David Leary: [00:48:03] Yeah, basically they're like the Big Four, but they don't do audit, and that's why they're not an accounting firm. From the consulting side, they're the same as all the Big Four.

 

Blake Oliver: [00:48:12] You wanna know how much it costs to hire a single junior consultant at McKinsey? These are either recent college or business school graduates, and they don't charge for them by the hour. They charge for them by the week. A single junior consultant will cost you $67,500 per week, or $3.5 million, annually.

 

David Leary: [00:48:31] See? Hourly billing does work! 

 

Blake Oliver: [00:48:34] Well, they're not billing hourly [crosstalk] they're billing by the week, and I assume that they're also able to charge that much because they're promising outcomes. If you want two of them, by the way, it's $160,000 per week. So, if you don't think you're leaving money on the table, billing strict hourly and not having this value conversation with clients, McKinsey would tell you otherwise. Well, they won't tell you otherwise because they don't want you to know because they wanna capture all this value. 

 

David Leary: [00:49:00] Wasn't the premise of that article, though, is that they are very good at getting the government to give them these contracts and then encourage the government to not actually do work themselves. Basically, they have projects that tell the government, "Your best option on this is to go find somebody else to work on it. By the way, we do that."

 

Blake Oliver: [00:49:18] Yeah. In other words, like McKinsey has profited greatly off of shrinking government because government then outsources a bunch of stuff to them and they charge exorbitant fees. Yeah, so, maybe not the best ethical example of value-based billing, but value-based billing is not right or wrong. It just has an outcome. If you wanna make a lot of money, you should probably be doing it.

 

[00:49:42] That's my hourly billing story. I wanna hear from listeners. Tell us what you think about this. I love having this conversation. If you disagree, if you think hourly billing would have been better in this situation, let me know. If you have a different way of doing it, let me know. All right, moving on ... David. I don't wanna monopolize things, but I do wanna talk about work from home before we go.

 

David Leary: [00:50:03] Oh, that's a perfect transition. That's a perfect transition.

 

Blake Oliver: [00:50:05] Okay. 

 

David Leary: [00:50:05] My story, in a way, has to do with work from home.

 

Blake Oliver: [00:50:08] Let's talk about your story.

 

David Leary: [00:50:09] So, this is actually a podcast I listen to. It's the Rootworks Podcast, with Darren Root, and his co-host, John Mitchell, who I think is somebody who works at his firm. Rootworks got acquired by Right Networks recently, but they do a weekly podcast- not even weekly; it's a whenever they feel like it, maybe, podcast. It's kind of them decompressing-

 

Blake Oliver: [00:50:28] Oh, that sounds really nice. 

 

David Leary: [00:50:28] -and talking about leadership, and transitions in their firm, and these types of things. This episode that we'll put in the show links, they really had some major views of the world changing because they basically are firm owners. They're now entering their mid-, to late-50s ... Prioritizing of work and just how eye-opening it is for them working from home. They're going through this journey just like everybody else is, and what they've discovered is, many times- and I get this, too - you'd stay in the office, and you'd be working from 9:00 a.m. to 5:00 p.m.; you'd go home and then you really have to cram and get the stuff you wanted to get done from 7:00 to 10:00. 

 

Blake Oliver: [00:51:05] Mm-hmm. 

 

David Leary: [00:51:05] They're adjusting their day, to where maybe, in the middle of the afternoon, they weren't gonna get work done anyways because their creative juices aren't gonna work, and they go for a bike ride, or they go fishing, or whatever it is, and then, they just do their 7:00 to 10:00, and they're just as effective as they've ever been. It's really their observations. It was kind of ... I don't know if firm leader is the right word. He has an accounting firm, but he really has a suite of accounting firms they coach. They're part of a [inaudible] club.

 

Blake Oliver: [00:51:33] It's a similar kind of like structure. It's a consulting firm, and they have clients. 

 

David Leary: [00:51:37] It's very eye-opening, their observations, and just to hear him be open and honest about this change of his opinions on working from home and how it's affected him personally and emotionally. I just thought it was a really good listen, so we'll put that in there. 

 

Blake Oliver: [00:51:52] Yeah. So, on that topic, the National Bureau of Economic Research came out with a study quantifying how long is the workday, now that we're working from home, and how many meetings are we having, and how long are those meetings?

 

David Leary: [00:52:07] Can I guess on the numbers, here, along the way? [crosstalk] 

 

Blake Oliver: [00:52:07] Yeah, yeah. By the way, this is from- this is pretty accurate, I think, because it's some application provider, unnamed, that has access to calendars. We're actually looking at the real data of tens of thousands of workers on their calendars, like what is changing now, from in-person to remote. So, the average workday has lengthened. You wanna guess by how much?

 

David Leary: [00:52:34] Previously, your workday was - traditional saying - 9:00 to 5:00. You have eight hours, right? That was previously. 

 

Blake Oliver: [00:52:38] Yeah, 8:00 to 5:00, whatever it is. 

 

David Leary: [00:52:38] I think you're pushing, right now, a 10.5- to 11-hour workday. 

 

Blake Oliver: [00:52:38] Not as bad as you would think. The average workday has lengthened by 48.5 minutes, on average.

 

David Leary: [00:52:49] Okay. 

 

Blake Oliver: [00:52:49] That's not that bad, considering that a lot of people's commutes were that long or longer, in the past, especially in large metro areas. I think what's happening there is that people are starting work when they normally used to get on the train, or they'd get in the car, something like that. The number of meetings has increased. Wanna hazard a guess, percentage wise?

 

David Leary: [00:53:08] So, we're at eight hours and 45 minutes a day, you're probably in a meeting for six of those hours. So, percentage wise, I guess, meetings went up 45 percent, 50 percent? 

 

Blake Oliver: [00:53:17] Only 13 percent. The number of meetings has increased 13 percent. Here's the crazy part - the time per meeting has fallen by 11.5 percent. So, all in all, that's kind of like a wash, right? If you have more meetings, but the time per meeting has fallen, it probably doesn't make that much of a difference. Really, all this stuff about how we're all miserable working from home I don't think is true. I think we're working more, but it's because we don't have these commutes, so it's better use of our time. We're probably also saving time, like getting ready in the morning. Like you said, David, you haven't taken a shower in a week, but you do have a pool, so you are at least rinsing, right? 

 

David Leary: [00:53:55] Chlorine clean is what we like to call it. 

 

Blake Oliver: [00:53:56] Chlorine clean. I did that yesterday ... We're saving time in the end, and I find it much easier to focus working from home. So, that's the stat there. I'd be curious to know what our listeners think here. Actually, I think probably most of our listeners do already work from home, given that they are cloud accounting folks. Why not, if you're in the cloud? 

 

[00:54:15] Another story here about working from home that could be more negative, though, has to do with state tax nexus. This was on Accounting Today, and the headline is: "The work-from-home tax crisis we have to see coming." So, this is gonna hit us real hard next year, or maybe even later this year. It's that when people go from an office to working from home, if they are working from a different state, that creates nexus now for that company.

 

[00:54:45] In places like New York, where you've got a bunch of small states all right around there, if people are now working from home, that creates potential nexus in New Jersey, and Connecticut, and all these places that you may never have had if you are a New York employer. By the way, New York is not very friendly to employees, so they still owe taxes in New York, even if they're working from Connecticut. Well, it depends on a state-by-state basis and what rules that they have with reciprocity and all that stuff, actually, so that could be wrong. If you're a California employer, and your employee, like me, moves from California to Arizona, now you potentially have Arizona nexus.

 

David Leary: [00:55:21] What if they don't really move? Because I know there's just a lot ... In a way, New York's a little younger ... Younger professionals; San Francisco is younger professionals. A lot of people have either moved back home temporarily during the pandemic. Now, if you're just temporarily living back at your parents' house for a while, but you're still getting paid by your California company, does that mess around with the nexus?

 

Blake Oliver: [00:55:40] Some of the states have enacted exemptions for temporary, but it's different for every state. This, to me, is a potential huge 'productizing a service opportunity' for accounting and consulting firms. A lot of your clients are gonna have these questions. It's gonna hit them at tax time. So, why not get ahead of it, and productize this, and say, "Look, we'll do a tax nexus study around your workforce (call it something like a workforce nexus study), and we will charge you a flat fee to do this." 

 

[00:56:12] Maybe you tier it based on the number of employees, and you send this out to your clients, and get ahead of it. Say, "We'll put together this report that says ... We'll find out where all your employees are working, where you have potential nexus, and we'll do this report so you're ready at tax time. Here are the potential consequences. Here's how you can ameliorate the potential downsides," something like that. 

 

David Leary: [00:56:33] Oh, and you're gonna have to- my advice to you ... This is practice, right? So, you are going to have to count how many days you were in California versus Arizona. But now, if you go to San Diego for a weekend with the wife to enjoy the weather, you have to count those three days, as well, as being in California. You have to keep track of all this.

 

Blake Oliver: [00:56:51] I actually have to be really careful not to go back to California because I moved here in June. If I spend more than half the year in Arizona, then I don't think I ... I actually have to check this. I do not know if I will owe California state taxes, but I believe if I spend more than half the year in Arizona, I'm an Arizona resident, as far as California is concerned. 

 

David Leary: [00:57:10] I have a rental property there, and we have to count any day, for any reason, I've been in California. It's not just any days you've worked in California; they wanna know any time you've been in California, and they count those as days [crosstalk] 

 

Blake Oliver: [00:57:24] I guess I have an excuse for not going to see my in-laws. All right, well, with that, David, I think we're up at the end of the hour. So, before we go, let's read our second review. I'll let you take that one.

 

David Leary: [00:57:38] Great info for accountants! "The Cloud Accounting Pod is my go-to source for all things cloud accounting. As a cloud accountant and firm owner, I feel like Blake and David really are in my corner making sure I have the info I need to do my job better. They tackle the tough issues of our industry and give us the best and most up to date information. Thanks, guys!" Baby Bruce, via Apple Podcasts. 

 

Blake Oliver: [00:57:58] All right! Thank you, Baby Bruce! David, if people wanna get in touch with you, where can they do so?

 

David Leary: [00:58:03] Easiest way is on Twitter or LinkedIn. I'm @DavidLeary, but on LinkedIn, make sure you say you listen to the show, so I know you're not a robot.

 

Blake Oliver: [00:58:09] Same here. Connect with me on LinkedIn. On Twitter, I'm @BlakeTOliver. David, great to talk to you. Stay safe. Stay sane. See you here next week.

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