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Peerview Data: [00:00:04] Welcome to the Best Metrics podcast. Each episode, we meet with industry experts to [00:00:10] discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights [00:00:20] and processes into your own practice. Thanks for listening and enjoy this episode.

Glenn Dunlap: [00:00:26] Hello and welcome again to Best Metrics. Today we'll navigate [00:00:30] the pathways of success and transportation and logistics. I'm your host, Glenn Dunlap, and today we're joined by industry expert Dan Rutherford. Dan boasts a storied career [00:00:40] spanning over three decades, from auditing national giants at the IRS to spearheading the financial forecasts of private transportation and logistics companies. And Dan has steered [00:00:50] one company to over $225 million in revenue and another to over 350% in profitability growth. He's a proud alumnus of Ohio University and Ball State [00:01:00] University, as am I, and now at the helm of the Transportation and Logistics Division of Summit virtual CPA Group. By Anders. And Dan's mission is to chart a course for success by establishing [00:01:10] a rhythm for management teams to stay on track in order to achieve a company's long term goals. Definitely an area where knowing the best metrics is is certainly key. So Dan, it's a pleasure to have you on board today. [00:01:20]

Dan Rutherford: [00:01:20] Yeah. Thanks, Glenn, I appreciate it. Looking forward to chatting with you.

Glenn Dunlap: [00:01:23] Yeah, that sounds great. This is, uh, it's an exciting, exciting topic, but so I just want to say before we jump in on the transportation [00:01:30] logistics stuff, because we're going to spend a lot of time there. Let's shine a spotlight on Anders CPA Group and summit the division for a second. So Anders is one of the top 100 firms, right? And uh, yeah, nationwide [00:01:40] we're on.

Dan Rutherford: [00:01:40] Most of the top 75 firms right now.

Glenn Dunlap: [00:01:43] Fantastic. Yeah. You guys have seen some fantastic growth.

Dan Rutherford: [00:01:46] Push the 400 employees. I believe the last I think we've been vacillating [00:01:50] around 400 employees, 135 CPAs. So sizable firm that the summit, um, consulting weighting is about 80 people. Okay. Um, [00:02:00] the virtual CFO wing. So, you know, we're a sizable organization. We have a lot of resources to bring to the table.

Glenn Dunlap: [00:02:06] That's fantastic. So you I know you're based in Fort Wayne and summit was largely in [00:02:10] Fort Wayne two. Right. Was that where the.

Dan Rutherford: [00:02:11] Yeah, summit was, uh, founded in Fort Wayne, Indiana. Adam Hale and Jody Grunin, uh, the founders are here in Fort Wayne. So they founded [00:02:20] it about 20 years ago. Concept being they wanted to kind of give accounting a little different spin and, um, get away from the true public accounting life and [00:02:30] focus more on on building businesses versus reacting to what a business had done and meeting with a client once or twice a year. So, um, [00:02:40] they developed the cadence of meeting with clients, uh, monthly, weekly, actually, most of them. So, uh, yeah, founded here in Fort Wayne in. Yeah.

Glenn Dunlap: [00:02:49] Yeah. That's fantastic. [00:02:50] There's, uh, the second largest city in Indianapolis, and there's a ton of things going on in Fort Wayne. I make the trek up there to, uh, you know, to Sweetwater. I think that's the big draw [00:03:00] to, you know, to come in. If you're a musician, you like, uh, you love going to Sweetwater or you're getting their packages. That's the other thing that, uh, is great. So. Yeah. Uh, well, it's fantastic. [00:03:10] Uh, I love the love the story of, of, uh, summit and, and, uh, a lot of what you guys are doing in terms of revolutionizing, you know, really changing the relationship [00:03:20] with, uh, with your clients and how those, uh, clients are structured. And you've done some fantastic things along those lines. So.

Dan Rutherford: [00:03:26] Yeah, absolutely. They, um, you know, when [00:03:30] I was in, uh, a CFO and, you know, our accountants would come in once or twice a year and, you know, they really don't give a lot of consultation, [00:03:40] just meeting once or twice a year. They really get to know your business. And, you know, summit serves a role for firms that I call no man's land. They're [00:03:50] not big enough for a full time CFO. Uh, but they need the expertise. And that's where we fill that void. We can come in on a part time basis [00:04:00] and provide the guidance to our clients that they need to take their business to the next level. So I think it's it's a it's a great model [00:04:10] that we have, uh, we stay in touch with our clients, like I said, pretty much every week we're talking with them. So we're really in tune with what's going on in their business [00:04:20] and react, you know, instead of reacting, we're out in front of it. Uh, we want to be their first call when they have an issue come up. And hopefully it's a good issue and not a bad one. So [00:04:30] that's right. Um, we want to be out in front of it and help them plan and help them, uh, forecast and so forth, and help take their business to the next level.

Glenn Dunlap: [00:04:39] Well, that's fantastic [00:04:40] growth. And it's it's exciting to see what you guys are doing, uh, you know, there. So it's, uh, you know, uh, it's fun to watch the model and, and hear your partners talk about that stuff [00:04:50] at the different conferences. I mean, certainly it's, uh, it's one that's, uh, touted. So congrats on all that continued success. So, um, let's turn, let's turn specifically now and talk a little bit, uh, about, [00:05:00] uh, transportation logistics. Six. So, um, absolutely. Yeah, I think so. That's a that's a broad category, right? I mean, just in, in and of itself. So maybe we should define that a little bit like [00:05:10] what are we talking about inside transportation and logistics for you guys. How do you what do you view that as.

Dan Rutherford: [00:05:14] Well the trucking for transportation, you know, we're talking about, you know, hauling freight um, [00:05:20] versus, you know, uh, you know, planes and stuff like that and ships and stuff. We're just talking about trucking and logistics on the logistics side. We're talking more about non-asset [00:05:30] based companies that are, you know, just a three pl someone that's helping a company move freight, and they're matching up a trucking company with, [00:05:40] uh, the freight and and brokering it out, you know, so logistics, just a fancy name for brokering.

Glenn Dunlap: [00:05:46] So there's a, there's a, uh, one of those tla's. Right. [00:05:50] The three letter acronyms. What's that? Somebody's listening to this. That's just getting in transportation and logistics. What is what is three PL stand for?

Dan Rutherford: [00:05:57] That third party logistics. Third party more. Yeah, yeah. [00:06:00] Third party logistics is uh, thanks for clarifying that. That's that's more kind of managing a company's freight where, uh, company would go in and they would actually take control [00:06:10] and say, we're going to be your outsourced freight department, almost, um, do some pricing and everything like that and actually manage the freight for the company.

Glenn Dunlap: [00:06:18] Okay. Yeah. That's great. [00:06:20] So when you think of when you, when you're working with a client like this and you know, you, you sit down with them for the first conversation, you're looking at a set of financials for them. Like you've got a PNL and you've got a balance [00:06:30] sheet. You know, what are what are your eyes drawn to? What do you look at immediately on a set of financials to kind of see what, uh, you know, how the company's doing first?

Dan Rutherford: [00:06:39] First thing I [00:06:40] look at is, uh, make sure their financials are in compliance with GAAP. Um, so many, so many mid-sized companies, they don't have good financials. [00:06:50] It all starts with that. You know, if you don't have good financials and you don't, you're not recording your financials according to generally accepted accounting principles, GAAP, then [00:07:00] you're going to get bad information. So the first thing I look at is see how how uh compliant they are with generally accepted accounting principles. Are they recording their transactions [00:07:10] properly or they accruing expenses and matching revenue up with expenses? You know, we don't want to see big fluctuations month to month. Um, um, in their financial [00:07:20] performance because they're not recording transactions properly. So that's probably the first thing I look at. Second thing I go to is, is their liquidity. Um, [00:07:30] businesses can't survive without cash and and being liquid. So I'm immediately drawn to, you know, how liquid a company is. [00:07:40] How are they prepared for a swing, you know, downswing in the economy, um, or even when the economy is good? Are they prepared for it? Are they are they, uh, planning [00:07:50] out their cash flow and everything? So I'm immediately looking at their receivables or cash and just looking at their net liquidity situation, just to see how strong [00:08:00] they are and can they survive. Because a lot of companies, they end up spending so much time managing their cash versus managing their operation. Yeah. So [00:08:10] anything we can do to help them secure a line of credit, accelerate base pay on their receivables and so forth, you know, anything we can do to put [00:08:20] cash in their pockets so they can function on they can focus on running their operation versus managing cash. Those are those are two of the big things I look at immediately. [00:08:30]

Glenn Dunlap: [00:08:30] Okay. Well, I want to go back, uh, to a second on the GAAP thing. So when you talked about those are the first things you're looking at. You mentioned, uh, you know, whether they're recording [00:08:40] transactions correctly. So when you're looking at a set of financials, um, are you're looking for inconsistencies in reporting periods. So maybe it's monthly, quarterly, annual. So you're looking yeah, [00:08:50] a lot a.

Dan Rutherford: [00:08:51] Lot of companies aren't recording like prepaid assets properly and and doing accruals properly for payroll or, or other, um, reserves. [00:09:00] They should have set up for bad debts and stuff like that to smooth out their financials. Um, they don't anticipate things that are going to be coming that, you know, just based [00:09:10] on business experience. You're going to have a bad debt write off. You're going to have a claim that you're going to record. So you need to be recording those things monthly. So you have a reserve build up. [00:09:20] So when one does hit you're not taking a big hit on one month okay. So it's just making sure you're, you know I like to see the financials be pretty smooth month to month other [00:09:30] than normal economic downturns and stuff that we can't, you know, can't navigate. But the actual financial performance should be pretty smooth every month. And we [00:09:40] should be able to predict each month and use that for forecasting based on, you know, financials prepared in accordance with generally accepted accounting.

Glenn Dunlap: [00:09:49] Okay, okay. [00:09:50]

Dan Rutherford: [00:09:50] I also look at it's it's important. Uh, in any industry, but especially in the trucking industry, to have everything grouped according [00:10:00] to property. Okay, you know, you got your 3 or 4 buckets of expenses, you've got purchase transportation, which is your your cost of goods sold. Um, we want to make sure we have everything [00:10:10] that's in cost of goods sold properly categorized. So you get a good calculation of what your actual gross margin is. So those are your three main [00:10:20] buckets. We kind of like to group things by and just making sure those are are properly categorized. And then you can use those if categorized properly. [00:10:30] You can use those to benchmark against uh industry standards and stuff like that to see where you compare. Because in transportation you're only working on a few percent, um, [00:10:40] profit margin. That's right. So you can get off on one of those, one of those buckets, then your margins are going to slip really quickly.

Glenn Dunlap: [00:10:47] Well, that's that's one of the tough things too. If [00:10:50] you don't have things grouped correctly and you're not, uh, you're going to be bidding those jobs largely. Right. So you're going to be. Exactly. And if you don't understand your costs, then you can really get out of, uh, out of whack [00:11:00] quickly. And all of a sudden now you can't make it up in volume. So, so, you know, really getting those things grouped correctly and understanding your expenses, your costs associated with [00:11:10] that is, uh, is really important if you if you don't know the variable versus fixed and all those kinds of. Yeah. So, um, yeah, that makes perfect sense. Yeah, yeah.

Dan Rutherford: [00:11:18] Looking at, uh, labor [00:11:20] costs, you know, a lot of companies, they get out of whack with their labor and they'll claim, well, we need, you know, we need all these people and like, well, [00:11:30] you're you can't make money, you know, if your labor is excessive. So you got to find a way to become more efficient. You know, transportation is largely about becoming efficient and [00:11:40] using technology and leveraging that and processes. So if that labor gets out of out of whack or a compensation plan is is [00:11:50] not properly set up, you know, a lot of incentive plans are set up improperly for logistics. And it could be just inefficient people. It could be a, um, pay structure [00:12:00] that's that's out of out of line. Some of those things are easier to fix than others. Some of them take time. You know, you can't just go in and change a pay structure [00:12:10] all of a sudden. But that's not uncommon in logistics or transportation to have wages or any business to have right wages out of line with gross profit.

Glenn Dunlap: [00:12:19] Yeah. [00:12:20] It's not it's not difficult to to get to get out of line. It's it's a lot of times it's difficult to identify what it is that's driving that. Like you said, the pay incentives or uh, over [00:12:30] time or if you've got high turnover rates or there could be any number of things that drive those, uh, those things out of whack pretty quick. So. Yeah. Exactly. Yeah. It's interesting. [00:12:40] All right. So it took you back to gap. So let's talk a liquidity. You're talking about um, so you're when you're looking at that, you're looking at the balance sheet. You're looking at cash receivables [00:12:50] there. Uh you mentioned net liquidity also things like do they have a line of credit available to them. So where do you see from a liquidity standpoint what from on [00:13:00] it to transportation. Like where do they get out of what causes them? The biggest problem with liquidity is it the amount of time that their customers are taking to pay them or, [00:13:10] you know, where do they where do they oftentimes miss miss combination of things?

Dan Rutherford: [00:13:14] Yeah, a lot of it is is managing receivables properly and not paying enough attention [00:13:20] to that and cutting their collection staff down when they really should be beefing it up. You know, that's an area of labor that that you don't want to cut. [00:13:30]

Glenn Dunlap: [00:13:30] Yeah. Cut the payable staff, not the receivables. Yeah.

Dan Rutherford: [00:13:33] Exactly.

Glenn Dunlap: [00:13:34] Yeah. Right. Um yeah.

Dan Rutherford: [00:13:36] No don't don't cut your receivables. But, you know, it doesn't take [00:13:40] much for a good collection person to make themselves up. So, um, staying on top of your billing practices, making sure that when you invoice something, you're invoicing [00:13:50] it properly, you know, you've got a rate confirmation. So you're you're not chasing down money. Uh, because the clients, like, we didn't agree to that rate or we don't have [00:14:00] a contract for that rate. That's a common issue in transportation is, is, uh, differences in, uh, you know, rates versus what, uh, [00:14:10] the company puts into their system or what they bill, which just creates headaches for everyone, creates headache on the collection side because they're chasing money that's not really owed. Right. And then on the line of credit [00:14:20] side, you know, making sure your terms are as they rule as you can get them. You know, if you're borrowing at 80%, see if you can get up to 90%, see if you can borrow [00:14:30] on unbilled receivables, you know, 80% of receivables.

Glenn Dunlap: [00:14:33] Is that is that what you're saying there, Dan? 80% or 90% of receivables. Accounts receivable. Yeah. Okay.

Dan Rutherford: [00:14:39] And then even, [00:14:40] uh, anything unbilled, you know, a lot of, uh, lending institutions will loan a certain percentage against what's even unbilled as a receivable. So you're [00:14:50] having those conversations with your lender ahead of time. And when you don't need money, it's the best time to have it.

Glenn Dunlap: [00:14:56] Uh, transportation logistics company like construction companies. How they have, [00:15:00] uh, under Billings and over Billings. Do you track anything? Is there a line item for that on the financial statements that would would equate to some.

Dan Rutherford: [00:15:07] Companies may may track that. Um, it's not something [00:15:10] I've, I've typically tracked, but something you could it would be a good idea to track that.

Glenn Dunlap: [00:15:15] How would you report to a lender the unbilled are then what would where [00:15:20] would that just be just in progress.

Dan Rutherford: [00:15:22] Or you have a report in your system that shows what's hanging out there. It's unbilled, and a lot of times that gets out of control to where clients aren't [00:15:30] staying on top. They've got a shipment they've delivered 90 days ago and they've never invoiced it. Yeah. And it's a constant. You're you're usually waiting for a bill of lading to [00:15:40] come back in a pod, um, for delivery. And you're waiting for that to come back. And sometimes you don't ever receive it. And it's a lot of phone calls and [00:15:50] trying to track that paperwork down. And if someone's in, like, your collection and someone's not working that perpetually, it's going to get out of control. Yeah, right. And [00:16:00] you're just, you know, you're working for free. That's what you're doing.

Glenn Dunlap: [00:16:03] Are those things being tracked inside their accounting system or do they have some another like a, uh, you know, an ERP system [00:16:10] that's set or. Um.

Dan Rutherford: [00:16:12] Uh, yeah, it's either inside the ERP system, there's an unbilled revenue report generally that shows what's what's hanging out there. It was [00:16:20] constantly a problem. And my past life, you know, just you're constantly tracking down paperwork. And we usually had 1 or 2 people assigned just to monitoring that [00:16:30] and making phone calls and trying to get paperwork in. And sometimes you have to call the customer and ask if you can bill it without paperwork. You know, they know they've got their freight delivered [00:16:40] and everything, and you're asking for a favor. But yeah, um, it's really a perpetual problem in the industry of of just tracking down that paperwork. [00:16:50] And a lot of them, a lot of it work gets done, you know, for free.

Glenn Dunlap: [00:16:54] Mm. How much of this is electronic now?

Dan Rutherford: [00:16:57] A lot of it is, um, you know, obviously a lot [00:17:00] can be sent in electronically, but there's still a, a fair amount of manual processes in the transportation industry, unfortunately.

Glenn Dunlap: [00:17:08] So you have a driver [00:17:10] that has a, uh, something that gets signed off on when they deliver it, and they've got to bring that paperwork back to the, to the shop to close out electronically.

Dan Rutherford: [00:17:18] Okay. Sometimes. Drivers [00:17:20] that quit, you know, just know.

Glenn Dunlap: [00:17:23] That never happens.

Dan Rutherford: [00:17:23] Right?

Glenn Dunlap: [00:17:24] Yeah.

Dan Rutherford: [00:17:25] They leave the paperwork in their truck and you know, you're tracking it down and you're then [00:17:30] you're trying to call the consignee to to get them to send you a copy of it. And if you wait too long, the consumer is not going to have access to it at your fingertips, and then [00:17:40] you're just asking for a favor for them to track it down and get it to you.

Glenn Dunlap: [00:17:43] Yeah. So there's, there's a lot of moving pieces in this. Right. So that sounds like.

Dan Rutherford: [00:17:48] Yeah, there's this liquidity [00:17:50] is not just one thing. There's just a lot of multiple a multiple things you need to be staying on top of, um, make sure your buildings get out the door quickly. [00:18:00] You know, making sure that once the load you're tracking your days, sales outstanding from the time of loads, a shipments delivered to the time you're collecting it, you know, that would [00:18:10] be a key statistic you'd like to watch and see how quickly you're turning from the time you deliver a shipments and the time you're actually collecting. Not necessarily from the time you bill it. There [00:18:20] could be a week or two, and you want to narrow that gap down as much as possible.

Glenn Dunlap: [00:18:24] So so that was my question. Dso or day sales. Outstanding. What does that look like. [00:18:30] What are you seeing in terms of uh, um, that number, where would you like that to be for a client of yours?

Dan Rutherford: [00:18:36] Uh, 40 days would be a good starting point from, you know, time [00:18:40] of shipments delivered to time is paid. Um. That's reasonable.

Glenn Dunlap: [00:18:44] Anyway, that's a shorter cycle than I would have thought it would have been normally, so. Yeah.

Dan Rutherford: [00:18:49] Um, some of them can [00:18:50] get, you know, depends on the industry, depends on, you know, the different industries and take longer. Yeah. If you're lucky enough to have EDI set up electronic data interchange, that can [00:19:00] speed the process up. Um, so that definitely helps if the client is big enough and you've got enough volume to do that. That definitely speeds the process up and speed of the collection [00:19:10] process and the billing errors and everything. So I'm a big fan of the electronic data interchange process.

Glenn Dunlap: [00:19:17] Yeah. Oh man. It's been a long time since I did any [00:19:20] of that manufacturing, you know, 30 years ago or something like that. And it was those were difficult systems to set up back in those days. Yeah. [00:19:30]

Dan Rutherford: [00:19:30] It can be costly to set up, you know. So you need to make sure you have enough uh, uh, volume to set one up. But um, usually if you got the ball in [00:19:40] there, it pays, you know, pays dividends on it in the long term and also can be a retention thing with a client, you know, that they they prefer to deal with someone that they're already [00:19:50] set up with. Api.

Glenn Dunlap: [00:19:51] Yeah. That's, uh that's interesting. Okay. So yeah. So you're looking at their sales cycle. You're looking at their liquidity. Uh, we mentioned [00:20:00] margins a little bit as a, you know, as an, an issue that how thin their margins are. So let's, let's talk about that a little bit. So we're you mentioned labor obviously is a is a cost in that I'm sure fuel [00:20:10] has have been a big issue for you know. Well it's always it's been a cost. But with the spiking fuel costs have been you know challenging I would imagine. But what [00:20:20] what other things are you seeing that impacts margins and maybe where do you see uh, where would you like those margins to be, let's say at a gross profit area and net profit margin?

Dan Rutherford: [00:20:29] You know, I think it's [00:20:30] a good target. 16% gross margin gross. Um, yeah, 16% in the industry, you know, give or take, give or take what, what mode of, you [00:20:40] know, transportation you're using, whether it's flatbed or, you know, something more specialized. But I think that's a good starting point. Uh, other things that would go into purchase transportation would be repairs [00:20:50] and maintenance that can get out of control really quickly. If you're, uh, a company fleet, you know, you got company assets and you're not managing your shop [00:21:00] properly. Uh, that repair and maintenance expense can get out of control real quickly. It's probably one of the biggest variables you have to watch. And transportation is [00:21:10] the is the repair and maintenance tire expense, making sure you're managing that. And it's tough because a lot of them falls back on the driver, you know, trying to get them to [00:21:20] take care of your equipment, you know, come through the shop frequently, um, making sure they're getting it maintained properly so that something small doesn't turn [00:21:30] into a big repair.

Glenn Dunlap: [00:21:31] Interesting age of the fleet would have something to do with that, too, right?

Dan Rutherford: [00:21:34] Yeah. The monitoring, you know, obviously how effective your, uh, you're turning your equipment, [00:21:40] you know, are you are you buying? Right. You know, you're getting the right discounts and stuff when you're purchasing equipment and making sure you're utilizing that, making sure [00:21:50] you don't have a lot of claims on your equipment, damaging it and so forth. So yeah, the repairs, tires, labor for the drivers, you know, that's gone up substantially [00:22:00] over the years. Drivers are you know, they need their pay needed adjusted. They're really underpaid, underpaid for what they do. So those are three of the big, [00:22:10] uh, some of the bigger components in the and alongside a fuel okay.

Glenn Dunlap: [00:22:15] Yeah.

Dan Rutherford: [00:22:16] That's interesting. Managing idle time is a big one. Mm. You know, if, [00:22:20] uh, truck doesn't have an auxiliary power unit on it, you know, some guys, if they don't have a Apu unit on the truck, they'll just idle the truck, [00:22:30] you know, nonstop. And you, the next thing you know, you look at their idle percentage and it's way out of whack, and just they're just burning through fuel like crazy. Mm. And it was price [00:22:40] of fuel that gets extremely expensive. But it's managing all those. There's there's not unfortunately not one thing to. Yeah. To really hone in on. But it's [00:22:50] important to keep tabs of multiple things and really do a good job of, of staying on top of this. Yeah. And not letting 2 [00:23:00] or 3 months go by before you pay attention to it. Right.

Glenn Dunlap: [00:23:03] So you're looking at this on a pretty tight cycles then. So you're.

Dan Rutherford: [00:23:06] Yeah I think uh, ideally you need to be looking at it weekly. I mean, you [00:23:10] need to look at most of your key performance indicators, at least weekly, if not some of them daily, because they'll get out of control. And if you don't stay on top of things, [00:23:20] they're going to continue to snowball. So, you know, there's probably you could come up with 20 to 25 different metrics just to watch in the industry, [00:23:30] just to stay on top of all your different things and making sure, you know, you know, you don't want to get too out of control, watching too many things and you're not paying attention to them. But it's really critical [00:23:40] to to watch at least weekly.

Glenn Dunlap: [00:23:43] So it's it's yeah, I mean, we we use the phrase a lot of times if everything's important and nothing's important. Right? So then, you know, if you've got, you know, [00:23:50] 25, 30 metrics or something like that, then it can be a real challenge if you, you know, to know really, where should we be paying attention? Do you break that down and have different people [00:24:00] in the organization paying attention to, you know, metrics that are within their control or something? Is that is that? Yeah, I think.

Dan Rutherford: [00:24:05] Ideally, whoever, whoever has access to managing those, you know, shop manager should [00:24:10] be managing the repairs and maintenance, you know, logistics, uh, operations manager should be watching their labor versus, uh, gross profit. Um, [00:24:20] if it's getting out of whack, you know, they should be identifying why, you know, again, do they have unproductive people? Do they are they overstaffed? Are they just inefficient? [00:24:30] You know, what's causing that? Because those percentages get out of line and they're just going to drive down profitability. Um, and they're going to get out of line from time [00:24:40] to time, you know, as long as you can explain them. You did a big hiring, uh, push. You know, you have to accept that you're probably going to drive down your margins for a little while. Um, and [00:24:50] as long as you go into that, accepting it but staying on top of the people you hire and making sure they're being, you know, at least incrementally [00:25:00] performing is highly critical. In my past life, we had some really stringent benchmarks. We watched and we watched those almost daily. [00:25:10] You know, we were paying attention to how many shipments, uh, and logistics person moved every day, you know, what their gross margin was. And [00:25:20] we focused on opportunities to improve that, whether it's better training, removing obstacles from them, you know, so they can move straight instead of focusing [00:25:30] on admin stuff. Uh, we constantly were focusing on what we could do to improve. Those, those, uh, areas of performance [00:25:40] as KPIs. But it wasn't always employees fault, you know, so we had to focus as a management team on what we could do to help the employee become more productive.

Glenn Dunlap: [00:25:48] Yeah. That's great. [00:25:50] So, uh, are there other ratios and metrics or things that you wanted to talk about or was there? I've got I got a still a bunch of questions on my side, but I didn't want to railroad away from [00:26:00] any.

Dan Rutherford: [00:26:00] One of the big macro ones that I think is overlooked. And transportation is return on assets. Mhm. Um, I think it's just a good macro level. [00:26:10] How are we managing our assets and you know, measuring that against um, some type of benchmark and we want to be 8%, [00:26:20] 10% whatever, whatever our benchmark is. And it tells how well you're utilizing the assets you've got in place. So obviously [00:26:30] transportation is very capital intensive industry.

Glenn Dunlap: [00:26:34] Yeah.

Dan Rutherford: [00:26:34] So that's kind of the the big sign of how well you're managing those, [00:26:40] those assets and how productive they are.

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Glenn Dunlap: [00:27:41] So. [00:27:40] So one of my questions for you along that lines was, was thinking about, you know, whether it's, um, you know, company [00:27:50] owned assets or owner operator and are you seeing trends or is it always a certain way within, you know, the companies that you're working with or, you know, that [00:28:00] is do a lot of times companies sort of push that out to owner operators? Or do they always just have a, um, you know, this company always.

Dan Rutherford: [00:28:07] Takes a good free. So usually [00:28:10] the company assets are are struggling a little bit more. They're kind of a support fleet or they owner operators a lot of times. So so a.

Glenn Dunlap: [00:28:18] Lot of times it's both. And so they're using [00:28:20] both owner operators and okay.

Dan Rutherford: [00:28:22] Yes okay. Exactly. Yeah. Commonly fleets anymore or trucking companies or are running those owner operators and [00:28:30] uh, um, company drivers and a lot of them have lease purchase programs to convert company drivers into owner operators to say they'd like to be in control of their own destiny. [00:28:40] Interesting.

Glenn Dunlap: [00:28:41] Interesting. So well then that that's really a different cost structure then for them, isn't it? So when you've got drivers that you're going to be pulling up, um, they're going [00:28:50] to be in charge of taking care of their trucks and.

Dan Rutherford: [00:28:52] Yeah, exactly. Yeah. Your business. So most of your cost is variable at that point. Um, but you still have, uh, [00:29:00] the component of owner operator. He breaks down. He doesn't have any money to he or she doesn't have any money to repair their trucks. And you've got that component you're always [00:29:10] dealing with. But yeah, the cost structure is nice because it's a variable comp structure. And Lance diamond way that's what they built their model on was completely they've [00:29:20] got you know, they've got owner operators and they've got agents and they're all variable costs. So they can pretty well predict what their profitability is going to be annually [00:29:30] as long as their revenue stays up.

Glenn Dunlap: [00:29:31] Yeah. Interesting. You know, I would imagine so like when you're starting an engagement with somebody, you know, a lot of times you start digging [00:29:40] into things and I'm what are, what are some of the I don't know, what are some of the nightmarish stories of things. I guess one of the things that maybe it's not nightmarish, but one of the things that comes to mind for me [00:29:50] is I, uh, that you, you come into and you start evaluating their margins on deals. Or maybe they've, they've just bid deals that they're going to lose their shirt on for the rest of the [00:30:00] this. So so how do you how do you deal with those kinds of things when you are consulting with a company right out of the gate and they've made some, some, some pretty bad decisions along the way here? [00:30:10]

Dan Rutherford: [00:30:10] Yeah, obviously those aren't easily correctable. Yeah. You know, and changing up your customer customer mix is not not easy.

Glenn Dunlap: [00:30:18] So that's a long.

Dan Rutherford: [00:30:19] Term you [00:30:20] know. Yeah the last couple of years the freight market's been on a downturn. So rates have been depressed. And they're starting to come back up a little bit. You know we're seeing some [00:30:30] indications of of you know the market tightening a little bit. But it's not an easy. Transition to go from, you know, they underbid [00:30:40] a client and or customer, um, to trying to transition to find a new customer. Re put in, you know, a pricing for that customer, [00:30:50] gain the business, gain traction with them. So unfortunately it's not a not an easy transition to go through.

Glenn Dunlap: [00:30:57] Yeah. And so you basically then have [00:31:00] to make sure that they've got the the ability to withstand that, that six months to three years or whatever the timeline is to, you know, to to deal with that customer, go and get some other.

Dan Rutherford: [00:31:09] You know, contracts. [00:31:10] I mean, they're usually not locked into the rates and stuff like that. So they need to jump over to another contract. It's just finding replacing that business with someone else, which, [00:31:20] you know, right now everyone's got capacity. So you know replacing it's it's challenging.

Glenn Dunlap: [00:31:25] Mhm. So that's so from a trend perspective are you seeing you know [00:31:30] a lot of times I think of uh transportation logistics as being, you know, leading indicators of what else is going on in the economy. So what else are we. You know, what, what is this telling you right now about [00:31:40] what's happening in the transportation and logistics industry? Like what's what are we in for as a leading indicator in the economy?

Dan Rutherford: [00:31:47] Well, it's a I'm not an economist, [00:31:50] but yeah. Yeah, that's a pretty big question for a big question. But yeah. Um. I'm. I guess I'm an eternal optimist, [00:32:00] you know, and I'm, I'm saying I track there's a, uh, it's called a diffusion indicator in the transportation industry, which shows what shippers think rates are going to do, [00:32:10] and that typically I was dropping into the low or the upper 40s, which is that's pretty low. Uh, we like to see [00:32:20] it up in the, in the 60s or upper 50s. And again, it's an indication of what shippers think rates are going to do. And right now it's picked back up into the low [00:32:30] 50s. So that indicates that shippers thinks rates are going to be increasing okay.

Glenn Dunlap: [00:32:35] So it's a confidence number is that we're uh yeah okay. Yeah.

Dan Rutherford: [00:32:39] Exactly. [00:32:40] So to me that indicates there's positive signs in the economy. Okay. Um, when I start seeing rates ticking back up a little bit, um, not substantially, [00:32:50] but enough to, to get out of the weeds a little bit. But it's if you've been in an industry long enough, it's just it's very cyclical. [00:33:00] And, you know, every few years you have this downturn and then it comes back out of it and it doesn't take much to turn, you know, doesn't take much to turn where capacity [00:33:10] is really tight. Uh, a little uptick in the economy, a little tightening in the capacity. And rates start to increase pretty quickly. It kind of follows suit rates for very lucrative [00:33:20] years ago. So they came out of Covid with some really, really lucrative rates. And transportation was really good for a couple of years. But so now we're just, you know, [00:33:30] seeing that last couple of years dive off again.

Glenn Dunlap: [00:33:34] Well, one of the things that certainly you talk about this being a capital intensive business, right, that they've [00:33:40] got to buy all the assets. And so looking at ROA return on assets is a big deal. Um, accessing capital interest rates would have an impact on this too, right? So if [00:33:50] you're already dealing with a business that's operating on thin margins, if interest rates, uh, you know, jump a few points, which they have, uh, you know, that's got to be an impact [00:34:00] as they're, as they're buying more equipment. I mean, what are you seeing? Um, uh, banks be aggressive in this space or are they backed off this space? What's what's the accessing [00:34:10] capital look like for, uh, you know, somebody in this in this industry? Yeah.

Dan Rutherford: [00:34:13] I'm saying I'm saying. Trucking company is kind of holding off on my equipment because the rates [00:34:20] are higher. And and, you know, trucking is low. So they're not too anxious to go out and gobble up some 150, $160,000 tractors when rates [00:34:30] are are not favorable and and either on the transportation side, the rate side there or interest rates either one. It also affects [00:34:40] on the line of credit as well. If companies got a line of credit, you know that extra 2 or 3% is really dipping into their their profit margin, um, [00:34:50] substantially. And so yeah, it's, it's it's definitely an impact on the, on the company.

Glenn Dunlap: [00:34:56] Yeah. For sure. So yeah. So they. Uh, holding [00:35:00] off on that. I mean, at some point there's going to have to be, uh, you know, you know, they're going to push off the, you know, those purchases for long enough that it's going to impact the repairs and maintenance. [00:35:10] So they're just going to have to bite the bullet or, or we're going to see interest rates come down. And then we'll see a bunch of, uh, brand new tractors running around on the. Yeah, we'll see more orders.

Dan Rutherford: [00:35:18] Come, come out.

Glenn Dunlap: [00:35:20] On [00:35:20] the interstate. Yeah.

Dan Rutherford: [00:35:21] Except then there'll be a couple years ago. It couldn't get a tractor, you know, a couple years ago.

Glenn Dunlap: [00:35:25] Yeah. Yeah. Well that's right. I mean, the supply chain was a big issue for that too. So. [00:35:30] Yeah. Um, yeah. That's interesting. Are we seeing anything? Um, you know, with the, um. And I'm not hearing reports about this stuff on the coast [00:35:40] like we were in the past, you know, that we're where things were being held up, um, uh, which was slowing everything being delivered. So is that that sort of calmed down? Is that? Uh, not. [00:35:50]

Dan Rutherford: [00:35:50] I am, I haven't seen any reports on that that would indicate there's any big backups, but doesn't mean I missed it either. But so far I've not been paying. I haven't seen any any [00:36:00] reports on big backs, up backups at the, you know, freight coming in. Yeah.

Glenn Dunlap: [00:36:04] Well, this is, um, this is really good. I mean, I think, you know, it's there [00:36:10] there are industries where there aren't that many moving pieces that you could, you could look at. It's, you know, we may have, uh, you know, labor in a, in a couple of, uh, you [00:36:20] know, material costs that. And, and yet this is an industry where there are so many moving pieces where, uh, a lot of things to pay attention to. So it's really good to to get in there and [00:36:30] pay attention to it. You mentioned using benchmarks. Do you you know what, um, where do you typically go for a lot of the, the benchmarks in this space?

Dan Rutherford: [00:36:37] Uh, the Atari, uh, [00:36:40] American Truckers Research Institute has some really good information. Okay. Um, also, the CIA has really good information on logistics. So those are two really good [00:36:50] sources in my opinion. Yeah. Of information to benchmark against. So yeah, I think I think it's really critical to lay out your numbers and compare it to those. [00:37:00] And you're going to have fluctuation of them in every month. It's not going to be in line. But at least on a, you know, annual basis, you should be able to see anywhere. [00:37:10] At least you know, we're in check here. Uh, we're wiser tire expense. So high or wise, our fuel expense so much higher. You know, what can we do to to manage that a little [00:37:20] bit better? The thing. Transportation in particular. Money's coming in and going out the door every day. You know, it's not like a lot of businesses, kind of like you alluded to [00:37:30] that are pretty simple. You cut checks on Friday, right? I mean, every day, every hour, you know, fuel is going out the door, repairs are being done. [00:37:40] You're making decisions, you know, about, you know, repairing the equipment on the road. You got a truck that broke down, you got to tow it, you know. So money's just constantly flying in and out of the company [00:37:50] and you're billing, you know, every day. And so staying on top of those things is just highly critical. We [00:38:00] recommend we meet with our clients. Like I said, we we try to meet with them weekly. Um, ideally, uh, we have a standard cadence that we have with our clients. We [00:38:10] one week we set up to go over financial statements and review prior month's financials.

Dan Rutherford: [00:38:15] And we really try to hold our clients accountable. You know, like, [00:38:20] hey, we got to set meeting cadence, you know, every Wednesday at 3:00. This is when we go over, you know, financial statements, uh, or once a month. You [00:38:30] know, we have a forecasting meeting where we're constantly adjusting the forecasts based on, you know, hiring, buying equipment, you know, reassessing [00:38:40] what their forecast looks like. We want that to be dynamic. So we adjust that on a monthly basis to see, you know, the determination of employees. If [00:38:50] they hire some employees today buy some equipment, you know, did they leave some space. So preferably we have this conversation before they do [00:39:00] it so we can forecast what it looks like. And then we like to talk about pipeline or going over receivables and stuff like that and see what that looks like. So we don't [00:39:10] go 3 or 4 months, right. And we realize, whoa, we've got stuff over 120 days old and what's going on with it? And it's been 30 days since anyone's talked to the [00:39:20] customer. So those are three of the, you know, main meetings we have. And usually we have a, you know, project meeting where we might go over capital budgeting or something like that with [00:39:30] a client. But our preference is to every week we're in front of the client and we're always communicating with them. You know, they we want them to to be reaching out to us, you know, [00:39:40] every week giving us a heads up. But for stuff we want to take a look at.

Glenn Dunlap: [00:39:44] Yeah. That's great. Um, that's a, that's a great rhythm. I think, uh, a lot of, a lot of companies [00:39:50] could benefit from having somebody, you know, uh, holding them accountable and forcing them to go through some of those things. I mean, that's a, you know, if you like. You said if you let that stuff go too [00:40:00] long and you get away too far away from it, there's not much you can change after it's 90 days old, you know. But exactly.

Dan Rutherford: [00:40:06] Yeah. I don't know what the percentage is of companies that are having [00:40:10] an actual forecast, but I'm guessing it's pretty low, I would agree. And in the companies you know that are the ones we service and [00:40:20] certainly that don't keep it up to date, you know, on a monthly basis. You know, maybe they go in and they set it, you know, a budget, so to speak, at the beginning of the year. But [00:40:30] then do they revisit it and compare it to their actual say, all right. We thought our repairs maintenance expense was going to be X, but it's it's [00:40:40] here's where we really are. So we compare, you know, prior 2 to 3 months to the forecast. And we dump all their information into our [00:40:50] accounting program, which provides some, you know, really slick dashboards. And so we provide some KPIs back to them. Um, we do the financial [00:41:00] allowances. So it really gives them a good overall picture of, of where they stand and provides return on assets. You know what their return on assets. Return on equity. Um [00:41:10] the current ratio liquidity, net liquidity, use of cash. We even do some comparisons to calculate where they where their tax liability [00:41:20] should be. You know projection. We stay on top of that. So there's not a big surprise. Um, one of the things we really push is to have clients have [00:41:30] cash reserves for not only taxes, um, but an operating reserve. You know, we we monitor that. What's your cash burn rate? So there's [00:41:40] a lot of metrics. We're, we're staying on top of every month with the client and try to review with them.

Glenn Dunlap: [00:41:44] Yeah that's great. That's great. Well, it's um, you know, when we talk about [00:41:50] the best metrics, there's, uh, this is an industry that has a ton of metrics and, uh, and a lot of things to pull on. So, uh, Dan Rutherford from Andersen, they're [00:42:00] thrilled to have you here today. So, Dan, if somebody wants to get a hold of you, how do they do that?

Dan Rutherford: [00:42:04] Uh, the roots for the CPA. Com, um, is my email address. So they can reach [00:42:10] out to me directly and we can set up a one hour consultation for a consultation and, and, uh, learn a little bit about their business and their, their, [00:42:20] uh, uh, pain points and so forth. We've got a flexible pricing model. So based on what a client really needs, some clients just want to meet once a month, [00:42:30] you know, um, they just want a sounding board. They just want us to crank out their financials and go over financials with them. Um, some clients want more frequent, you know, [00:42:40] consultation and everything. They want cash management. They want they want us really into the weeds on everything. So depending on what client needs and [00:42:50] their current resources, you know, people they have on staff and everything, we can be really flexible and and working with them.

Glenn Dunlap: [00:42:57] Yeah that's great. Well that's a great um [00:43:00] it was a great conversation. I appreciate you joining us today. I really, uh, you know, this is not an industry that I've had a ton of experience with, but it's one that, um, you know, as you, [00:43:10] as you pointed out, a lot of moving pieces and it would be a lot of things to pay attention to here and, uh, definitely one that if you're new to the advisory game or new to this industry, [00:43:20] there are a lot of things to to learn from that perspective. Or if this is something where you've been in it for a while, it's a good reminder to think through all the the different things there. So, uh, appreciate your expertise. [00:43:30] Appreciate you joining us today. And, uh, uh, if for those of you.

Dan Rutherford: [00:43:33] Appreciate you having me.

Glenn Dunlap: [00:43:34] Yeah, absolutely. So thanks for thanks for sticking with us through the end of the episode. And we're excited for, uh, for you to be here. We'll [00:43:40] see you the next. Next time. Thanks.

Dan Rutherford: [00:43:42] All right. Thanks, Glenn.