Archive for January, 2009

Resurgence of the strategic CFO?

January 29th, 2009 Comments off

      A recent conversation at the trade show I attended had me discussing the expected role of the CFO in the current environment. The conversation, among finance peers, was focused on whether a technical, or “mechanical”, CFO could really be successful in the current economic environment or if we will again see the resurgence of the “strategic” CFO.  If you’ve read my prior posts there’s no question on my opinion. You would also know that my day-to-day activities are focused on a collaborative approach with every functional area of the company and I constantly look for ways to drive efficiencies that will have a positive effect on the bottom line. I’ve also been fortunate enough, prior to achieving the post myself, of working with CFOs who were also very good strategists and mentored me in creating the necessary balance.  The assumption being that any current CFO has the underlying technical skills to support the position.

     The segue for the conversation was a recruiter comment that mentioned they were looking to fill a CFO role but the hiring company was firm on having a CPA. While the scales are slightly tipped as a % towards the number of CFOs who have the designation, there is still a high % who do not, and are simply superior in their skillsets. However, for some time there was the absolute need in many corporations to bring in more of the “mechanic” type profile of a CFO for Sarbanes-Oxley implementations & other peripheral accounting and control functions.  But we now find ourselves in a much more challenging environment and I would table that many of the “mechanics” are simply not equipped, or have educated themselves on the intimate workings of the Company they deal with. That they have not established the necessary collaborative relationships to successufully implement projects. Nor do they have the mindset to work on realistic multi-year strategies that move beyond the simple construction of endless balance sheets. The real difference are the strategic CFOs who utilize their CPA knowledge as a complement versus Accountants who have progressed to the role only through opportunity.

     Yes, these are generalizations, and I have worked with some incredibly talented folks that are also CPAs. However, we are now seeing the absolute need for finance professionals that can work with all the functional areas within an organization and synthesize the information quickly to develop a realistic financial roadmap. Someone that can substantiate the information, really understand the story, and add more value than just changing some variables in a spreadsheet.

Thanks for reading . . . .

Jeffrey Ishmael

Why discuss Acquisition planning now? We’re not selling now….

January 23rd, 2009 Comments off

     I continue to work with both small and larger companies and continue to be amazed at the lack of real forward thinking when it comes to formulating long-term strategies for the entity in question.  In particular, the process of setting up a company for an eventual acquistion or the entrance of a key strategic partner.  Quite often the response has been “We’re not quite ready to put ourselves on the selling block” or “I think were atleast 1-2 years out from such an activity”. Did you really think about what you just said…?

     Let’s take the example of a smaller entity, that acknowledges they want to be sold, & that this is the stated goal within a few years. Let’s also assume that this entity is not ready now and has quite a bit of clean-up to do before deciding to start that fun little dance. Most Managers and Directors do not appreciate the complexities and depth that go into an effective due diligence process. Let’s start with only the top layer of information, which some companies even struggle to deliver:

  • Multiple years of auditied financials, tax returns, and supporting documents.
  • Documented internal controls and processes used for daily operating activities.
  • Implemented Budget and Forecasting efforts, along with reconciliations to judge accuracy.
  • Reconciliation of all H.R. related information to mitigate any post-deal employee lawsuit risk.
  • Reconciliation of all intellectual property matters, which support underlying business or identify areas of competitive risk or potential litigation.
  • Review of the management team, skillsets, and to determine if they will take the company to the next level.
  • Review of vendor listing to identify difficulting in sourcing or any single-source vendor risk.
  • Review of the customer list to determine depth/quality of customers and any single-customer concentration risk.

     Keep in mind, this is only a portion of the likely punch list. Starting to get the idea? This is not an effort that can be taken on and accomplished in a matter of months. To maximize the value that you’ll receive for the business, this effort needs to start well in advance and the planning process is immense. If you have not started going through and documenting these areas, then any attempt at a punch list will be half-baked and will not provide the most complimentary view of the company, thus resulting in a decreased valuation.

     The effort that will go into this exercise spans the entire organization and will likely be a large distraction from the business at hand if not properly planned for. The discipline to plan and enact the necessary change over a longer period will show that the management is consistent in their actions, show that they understand what it takes to change the business, shows that they are willing to make change, and ulitmately, will support higher valuations at the bargaining table.  Anything short of this will lead to varying degrees of discount in the final valuation. Want to improve your valuation?….then that’s why you start your planning now . . . .

Thanks for reading,

Jeffrey Ishmael

Reporting transparency w/ Employees: Why not?

January 6th, 2009 Comments off

I have had a number of comments/questions regarding the level to which employees should be aware of financial results and how much detail should be shared with them. My view, if you are not currently a public company, is that you should operate as one and provide the same level of reporting transparency.

As we kick off what will most certainly be an interesting ride in 2009, there is no doubt that we continue to find an environment of constantly changing dynamics. While I chose to push the completion of our Budget until the final few weeks of December, I have already found that there are potential material changes that arose during the Holiday break, which will likely impact our Q1 and Q2 results. Although it would certainly not allow us to achieve our budgeted results for 2009, we still have the ability to effect additional changes to maintain our profitability in 2009. However, these changes, and our profitability, will not be achievable unless the entire employee base is aware of what needs to be accomplished and are engaged in that mission.

Even our smaller entity has not been immune to the employment adjustments that have had to be made sector-wide even though we achieved higher sales in 2008. We are in a very difficult environment and need to plan for the potential continuance of these conditions. With the adjustments we’ve made it inevitably creates a sense of uncertainty. We have lost some employees to competitors. There’s a very real cost to that turnover and the loss of tribal knowledge within an organization. I also acknowledge that while I can identify the key areas that need to be addressed for savings initiatives, it’s the smaller day-to-day spending that the wider employee population can effect and create additional savings. Smaller areas not necessarily seen by management. It’s our employees that will help achieve our aggressive forecasts and our return to profitability this year. It’s our employees that will develop our new product lines and marketing materials to continue growing our market share. It’s our employees that make this company a great entity to work with.

With those few thoughts in mind, why wouldn’t I share our financial targets with our employees so they can see the map that we need to follow in 2009? How do you work towards an end goal if you don’t know what the goal is? If the employees of larger corporations have this luxury via 10-Q and 10-K filings, then why shouldn’t they have this available at a smaller entity where performance levels, I believe, are more crucial? Simply, there’s no reason not to share it and I’ve realized solid results by initiating “internal transparency” in the same manner that I work with key external stakeholders.

Thanks for reading . . . .

Jeffrey Ishmael