Archive for October, 2008

Private Equity panel: Definitive info or Hypothesizing?

October 29th, 2008 Comments off

Tonight I had the opportunity to sit in on a panel discussion on Private Equity and their views on the 2009 Outlook. The panel was hosted by the Pepperdine Graziadio School of Business. While not a Top-25 school, they’ve been doing some good work locally in expanding their alumni base and putting on some worthwhile events. The panel was comprised of three MD’s/VP’s with a variety of industry participation between them. The panel was moderated by a Thompson/Reuters contributing editor.

While I typically look forward to these events, I have to say that I was a bit disappointed in that tonights panel lacked some of the definitive information I always look forward to taking away from the event. While the group said they are still pursuing deals, the discussion centered around the common knowledge of lack of credit, lower multiples, lower debt requirements, and the emergence of more seller financing in deals. Thanks, but isn’t this the same information I’ve been reading about in The Deal magazine, hearing on CNBC, and seeing in the WSJ every day? Isn’t this the same information that’s been a topic of discussion at FEI events over the last 6-8 months?

For a Finance professional who is always looking to deliver additional value for shareholders, whether I’m looking to sell the business or not, it would have been more insightful for the panel to discuss how Buyers and Sellers can come to the table at such a difficult time in the market and structure a deal that is advantageous for both sides. If you’re a company that has no near-term pressure to sell or raise capital, how do you explore strategic alliances or structure minority deals in this market without leaving shareholder value on the table? The event would have been a better success if there was more definitive discussion and less hypothesizing about where the market might be headed.

Thanks for reading . . . .

Jeffrey Ishmael

Do you have a fiscal strategy or fiscal workout?

October 25th, 2008 Comments off

Every so often we’re reminded about the need to have a specific plan in place, and without that plan, you’re not going to achieve your ultimate goals. I’ve seen this play out in two different ways over the last few weeks. One was my recent commitment to race the Southern California Time Trial Series this year, while the other is my new position as the CFO of a small footwear manufacturer.

Let’s start with my cycling training. I have all the top tools that would enable me to have specific and regimented training programs. I have PowerTap wheels for both my roadbike and TT bike, the latter a PowerTap disc. I have all the latest software to analyze my wattage history and taper accordingly. My wattage levels have been great. However, I hit the first two races and they were an utter disaster. I finished outside of the Top-5 and was not awarded points. My wattages during the race were 15-20% below my recent results. So….the local shop Pro tells me I was probably overtrained and not rested enough. He set me up with a daily program that I have been following diligently every day. While the “numbers” tell me my fitness is dropping, the legs feel fresh and strong. At my last race, I raced in the Pro 1/2 class, received points for second, and set a personal course record. Go figure…..

Carry the same analogy into my new company and I’m finding a team that is working very hard to make sure they hit their annual goals and achieve whatever level of profitability they can. However, just like my previous training plan, there were no day-to-day specifics, or in this case, month-to-month specifics. In particular, the Finance team does not have a forecasted P&L, there are no cash flows, there are no specifics as to how they will move back into profitability, and a host other non-existent reporting tools. The great news is, as I was, they are very willing to change and aware that they need to in order to achieve their necessary results. We are already putting some of the necessary plans in place and I’m very optimistic about the 2009 outlook. In a handful of weeks we already have reconfigured P&L info, we have a preliminary 2009 Budget, and we’ve identified a number of areas that will provide us additional product margin or expense improvements.

In both these cases, we were both working extremely hard but just not getting the necessary results. The effort was there, the necessary tools were there, the skill set was there, but what was lacking was a specific plan. In my case, it took a fellow competitor to bring out my best, while in the case of my new company, they hired me to bring out the best in them….and I’m looking forward to the results on both. So ask yourself – Do you have a fiscal strategy or fiscal workout?

Thanks for reading. . . .

Jeffrey Ishmael

It’s not all about improving the P&L. Your off time…..

October 13th, 2008 Comments off

As much as I enjoy my career and the constant challenges it brings to my life, there’s a very tangible satisfaction to being involved with projects or businesses that have no direct impact or benefit to my career or income levels. In fact, it’s some of these projects that will bring you back to the basics and help you realize that it’s not all about solving complex equations, restructuring sophisticated organizations, or working on an extensive team.

Through my contacts as a FENG member, I received an invitation to volunteer as a Committee Member for the further development of the Accounting/Finance department at Rio Hondo College. Not having pursued this path in the past I forwarded my info wondering how it might be received by the Dean of the school. My participation was appreciated and welcomed and I’m looking forward to my first Committee lunch in November. While it’s not part of my alma mater with USC, I’m very much looking forward to involving myself with another group of folks that will give me entirely new perspectives.

Another area I have taken an interest in is colleagues who are diligently building their business in the cycling industry. I spent quite a bit of time in that industry and have great memories. While I learned some hard lessons, it was a great industry to be in. One of my colleagues is running a retail shop that is of moderate size, while the other is working hard to build a hydration supplement company. Both are going through their individual growing pains and it’s incredibly satisfying to go ride with them, race with them, and act as a sounding board for their ideas and have very engaging discussions. Am I billing out my hourly rate? Are they referring me new clients? Are they giving me free product? I’m not getting any of this, nor do I expect it. They’re gracious enough to offer nice discounts, but the real satisfaction comes from seeing them succeed and their businesses continue to grow.

What are you doing outside your world of spreadsheets, cash flows, and balance sheets? I know it’s tough finding that extra sliver of time away from family for additional obligations, but it’s also very satisfying and a necessary part of continue the growth of your own network. Give it a shot…my might just enjoy it.

Thanks for reading . . . .

Jeffrey Ishmael

IFRS reporting & equality in reporting . . . .

October 6th, 2008 Comments off

I’m a bit off in the last week as I have not been reading all the info that has been getting published with respect to the pending IFRS standards. However, one of the primary drivers in the adoption of IFRS is to have standardized reporting for public entities, whether there in Italy, France, or here in the U.S.. So once these new standards have been rolled out then we’ll be able to view each company in the same light and make equal comparisons? Wrong. A reader of SEC reporting for a handful of companies in a similar industry can easily start to see the differences in the manner in which those companies report. Yes, there are standards that they all need to follow, but that doesn’t mean those standards extend to every section of a 10-Q or K.

Let’s jump into a very simple example, and with some brands that most consumers are pretty familiar with . . . K-Swiss, Skechers, and Heely’s. As I read through each one of their most recent 10-Q filings, I wanted to learn a little more about how each one of these companies was tracking their Cost of Goods. The observation that prompted my curiousity was the drastic differences in Gross Margins between these three entities.

The worst performer of the group appeared to be Heely’s, but they also took the approach of burdening their COGS with every cost element that touched the flow of product through the design & manufacturing process. These costs included all freight, warehousing, tooling, tooling depreciation, royalty expenses, shrinkage, quota fees, and agent fees/commissions. This same approach is also taken by Skechers. However, compare this to K-Swiss, who didn’t break out the different elements of COGS, but recorded their warehousing fees within their SG&A expenses. Ultimately, you have Gross Margin levels that range from the mid-30% to high-40% range. While some of the discrepancies can be attributed to performance levels and buying efficiencies, it’s clear from the K-Swiss example that not all margins are created equal.

While all of this ultimately flows to the bottom line and it’s only a mapping issue prior to the EPS calculation, there’s the management of perceptions when it comes to comparisons with your peers. “You’ve got a lower Gross Margin so you can nearly be performing as well as Company XYZ….”. Not necessarily the case so make sure you know how you’re presenting your financials in comparison to your competitors.

Thanks for reading . . . .

Jeffrey Ishmael

Defined strategies & efficient use of resources . . . .

October 2nd, 2008 Comments off

Needless to say, my schedule has been getting crushed since I’ve started my new engagement in San Diego. My work is not only being conducted in the office, but at home after hours to get up to speed as quickly as possible. Unfortunately, one of the items to suffer has been the regular update of my site. It’s been tough trying to strategize and get my updates in. I’m going to try doing a number of posts through the weekend and updating through the week. We’ll see if that works….

However, I was on the bike early this morning (can’t give this up….) and I was doing some of my high-intensity interval work and evaluating the wattage numbers. Since I was tired this morning and was on a second consecutive day of intervals I decided to back-off and get some easy miles in. As I was spinning around Fiesta Island, where I’ll be racing in 2-weeks, I started evaluating my equipment, diet, and what kind of lead in I should be prepping for the race. One thing that came to mind, which has not before, is defining a specific course strategy and my line around the island. After all, what’s to consider, its a round island and you just need to go out and hammer. Right? Wrong….

I decided to do two laps. One lap would be a sloppy line around the island and taking the outside perimeter of a single car wide land around the island. The second would be a combination of inside lines and smooth transitions. I didn’t care about times….just the mileage. The first lap, the sloppy lap, resulted in a 4.17 mile reading. The second lap, picking what I though would be the most efficient line. The second lap came in at 4.11 miles. Ok…I know…only .06 miles. However, on race day we’ll be doing 3 laps. That translates to .18 miles. Let’s say I fall in the mid-range and a minor level of sloppiness costs me .1 mile. With a mile at clocking in at 2.3 minutes, or 150 seconds, that translates to a potential improvement, or penalty of 15 seconds. Huge in a time trial.

I started considering the application of this same concept to my budgeting efforts and the establishment of goals for 2009. As I’ve previously written, it’s not about hitting huge home runs, but more about making those small incremental changes and making sure that you’re making the most effective use of your resources. How do I produce a higher level of EBIT through an efficient use of my resources. How do you hit your goals without blowing out the finance element of your organization? It’s an interesting consideration and one I continue to practice in my professional career.
Thanks for reading. . . .