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Archive for April, 2009

Your lack of planning is not my new “emergency”. . . .

April 28th, 2009 Comments off

     It’s really amazing how quickly you can progress from a rather nicely paying Project on a Friday afternoon to a complete implosion over the course of a weekend, culminating in a withdrawal from the project. I certainly wasn’t anticipating it, but that’s exactly what happened last weekend.  The crazy part about the situation is that it was really the product of two inappropriately worded emails outlining the disappointment in progress and the lack of execution to date. Funny, while discussions had been happening the better part of 6-8 weeks, the engagement wasn’t supposed to start until May 1, and the majority of the time until now had been gratis…or perhaps “ungratis”.

     The entity I had been having discussions with was effectively a 3rd round funding candidate who had developed a pretty fantastic product, and in the characterization of any MBA student, was looking to legitimately be a “disruptive technology”.  They had been able to keep their operations lean and were making effective use of existing cash resources. However, as early as the open of Q1 it was clear that they were going to need to bring in additional operating funds. However, there was an incumbent “CFO”, who really did not have the background for the position, but nonetheless was tasked with the responsibility. Quite simply, the Company had an obligation to support this individual so long as they allowed him to remain in the position. Unfortunately for the company, and their need to aggressively pursue additional funding, there were no results on the part of the incumbent. The Company finally decided last week that they wanted to move forward with an agreement that would have me pursuing funding (#1 priority), but would also be setting the foundation for the broader finance function within the company. From the development of a new software platform, to the tracking of cost standards, the development of all their financial reporting, to representing them at certain investor events. This was all last week.

     Within the span of 72-hours after having my first on-site meeting after agreeing to the engagement, I immediately was being called to task as to why the fundraising wasn’t happening in a more agressive manner, that I had been provided all info over the preceeding 6-weeks, and questioning whether I was truly committed to the project. Did I miss something, or did we just agree on a May 1 start to the project?  The wording of the emails was also strong enough, and disrespective enough, that I knew immediately that this was not a long-term engagement I wanted to be a part of.  I was basically being held responsible for the inactions of a previous incumbent and the lack of action on the part of founders to ensure that their financing goals were on track for achievement. The situation was no different than missing key patent filings over the last quarter, hiring a new VP of Design/Engineering, and asking why patents weren’t filed….before their arrival.

     There’s no question working in the role of Finance, we are all accustomed to having to deal with emergencies and having to reprioritize tasks as conditions shift. However, there is also the element of appropriately placed accountability and following up on deliverables that were properly planned for.  It’s also quite clear, that even with proper planning, certain goals aren’t achieved, and that strategies need to be altered. However, a complete lack of planning, a lack of collaboration with current staff, and not supporting them in the necessary way does not translate as my emergency and something new players should be held accountable for. High caliber Finance consultants can provide solutions, but when the work is conducted under a condition of desperation, the results will never turn out positive, and quite often, result in the least desirable situation.

Thanks for reading . . . .

Jeffrey Ishmael

As the IFRS World Turns – & continues turning. . . .

April 21st, 2009 Comments off

     It’s been quite a few months since I’ve touched on the topic of the pending IFRS conversion. I’ve just continued watching from the sidelines as to how it would develop as the entire global finance system worked its way through the existing meltdown.  Since I had the “luxury” of working through an full-length IFRS conversion during my time with a France-based company, I was provided with a great insight as to the merits, and difficulties, of such a conversion.  Through the majority of my posts during Q2/Q3 of last year I discussed the significant challenges U.S. companies would have going through such a conversion and whether the U.S. was truly prepared to cast aside a financial reporting structure that had been developed over decades, rigid in it’s application, for a system that was principles-based and open to the interpretations of those applying the “Standards”.

     Interestingly enough, the discussion boards are heating up to call for the SEC to discontinue its mandate of having U.S. companies adopt IFRS. In a recent article on CFO.com, finance executives have “cited concerns over whether the U.S. legal culture and auditors could handle a more principles-based accounting language, getting their staff up to speed on IFRS, the integrity of the IASB, and whether the international rules are truly bettern than U.S. GAAP”.  Some are arguing “that an outright adoption of IFRS, rather than convergence, may be a better route”. I will still take the position that while the current structure of IFRS is a quantum leap over what previously existed before, it is not strong enough to outright replace the U.S. GAAP system. 

     As in my posts from last year, there are still a number of questions that have yet to be answered, and are even more relevant now considerating the developments of the financial markets over the last year.

-Are we really prepared to enter into a 3-year moratorium on new accounting standards to work through the conversion? (consider that most significant changes in standard are born out of crisis…)

-Does the IASB have enough ful-time, technically capable, and independent staff members to support a broad-based U.S. conversion effort?

-What is the U.S. education / university system doing to bolster the number of qualified graduates with the proper IFRS knowledge base?

     There are countless questions which need to be addressed, which are over and above those centered around a comparison of the two reporting platforms and how they will be enforced. I have not read about these questions being addressed and would like to see articles quantifying the developing support in each of these areas.  With all this said, while I don’t believe that we are realistically looking at a conversion window in the near-term, I’m certainly going to continue keeping my IFRS knowledge up to date with any developments happening across the pond.

Thanks for reading . . . .

Jeffrey Ishmael

Resource Management – Steel trap or steel sieve?

April 10th, 2009 Comments off

     The last Quarter has seen no shortage of financial folks in my network asking about my perceived prospects for the rest of the year. Unlike many others out there, I am not going to make any predictions for what lies ahead for the rest of the year. As of now, I am treating each Quarter as a new battle with different conditions that will have to be dealt with and the need to employ an altering strategy. The analogy that I continue to reference is that we are living a lesson in Darwinism and only the fittest will survive. There is no room for complacency.

     With that in mind, I treat each day as an opportunity to review the deployment of our resources and determine if our capital is being utilized in the most efficient manner. Whether this is in the form of headcount, operating expenses, small capital purchases, or vendor contracts, the week:week management of these resources will determine if we are going to make our Quarter. Don’t get me wrong, I am certainly not micro-managing and losing sight of the longer-term picture by playing in the weeds all day. However, as I’ve written in a previous post, it’s about those smaller incremental Base Hits than going for the huge home run. We are managing our resources with the approach of a steel trap and not letting our results get diluted through smaller expenses trickling through because they fall below the radar.

     Fortunately, we have a great team and there is little concern that needs to be placed on our personnel. While there’s always improvements that can be made to productivity, we’ve made huge leaps over the last 8-months. Our spending is significantly down over the prior year. We’ve implemented new payment terms with vendors that allow us to take early pay discounts, which were previously non-existent. We’ve brought our inventory levels down by over 30% on a year-over-year basis, while being able to achieve an increase in sales.  These results are only achieve with a strong discipline, short-term management of resources, and a long-term goal that is clear to all employees.  There’s no question we’re operating with a steel trap mentality. How are you managing your resources ?

Thanks for reading . . . .

Jeffrey Ishmael

Investor Relation efforts – Not just for Public companies.

April 7th, 2009 Comments off

     I was talking with a friend over the weekend and telling him about I group I would infrequently attend meetings for, NIRI, or the National Investor Relations Institute. They have a fantastic Orange County chapter and a number of the members have become friends over the years.  I was asked why I attended the events since they typically catered to the I.R. position for public companies, or those heading down the IPO path. True, the meetings are targeted to those individuals, but the investor relations effort isn’t confined to a delegated / dedicated position or solely public companies. In fact, I tend to believe the effort needs more focus for a private company since public information isn’t readily available and if banking, vendor, and other key relationships are to be fully leveraged, then there needs to be some level of transparency for them to base their decision making on.

     More specifically, I make a point of maintaining active discussions with our bank to keep them updated on our monthly & quarterly results, as well as any material changes to our Forecast. While there’s a certain built in level of accountability (& risk) in starting these conversations, the benefits gained from delivering on previously discussed plans is invaluable. Not to mention the credibility that will be built over time. It’s a message constantly delivered in the market place…”Relationships need to be developed before you need them”, or in this case credit lines, but it’s absolutely true. No, I’m not undertaking this exercise because I have covenants that need to be managed or our company is in some level of distress, it’s merely good business practice.

     I’ve had some great folks that I have been able to work with and for, who have provided some great circumstances to learn from with respect to investor relations. More importantly, the investors in your company are not only those who have contributed working capital, but those who are investing their time and corporate resources to help your company succeed. Whether they are getting a return as an investor on the sidelines or securing returns working as a corporate agent, they should still be viewed as investors?  How do you view your key relationships and manager your IR efforts?

Thanks for reading . . . .

Jeffrey Ishmael

Executive Dashboard – Final Summary

April 3rd, 2009 Comments off

One of the key projects I wanted to complete during Q1, which is now finalized, is the introduction of an Executive Dashboard. For my current company, there has never been any form of EIS (Executive Information System) reporting in place so this involved the intro of a brand new reporting tool. For this type of situation there are countless pros and cons. On the one hand, there’s the open arms welcome of something that will help with key decision-making and provide new perspectives on the business. On the other hand, when everyone starts getting involved in “what they need” you run the risk of having what should be an overview turning into a data dump of so much info that it becomes more of a burden than useful tool.

As with every company, there are a multitude of approaches as it relates to measuring the business, and defining the necessary approach regarding the reporting of financials. More specifically, there will be a completely difference approach for the reporting of a Retailer versus the reporting for a company that might have an intensive R&D effort. Both will have a completely separate, and unique, set of needs for their reporting.  For the sake of this summary, I will keep those needs aligned with that of an Apparel or Footwear manufacturer.

                With respect to the creation of an Executive Dashboard, there are numerous off-the-shelf capabilities that can be integrated with your current reporting platform. For this company, which is using an older & customized form of MAS, I’ve chosen to take the more simplistic approach and build an Excel-based template that can be easily updated and will provide the snapshot that the greater management team will find of value. Especially since this type of tool has never been implemented.  Further considerations include the different segments or metrics that you believe need to be reported on.  In most cases, you’ll find a summarized reporting of Orders, Revenues, Balance Sheet, and Customer-centric items.

                But even then, with respect to each segment, do you really need to report on every item within each segment? For Revenue, I chose to report only to the level of Domestic and International for the segments of Footwear and Other, respectively. While we have additional segments such as Clothing, Accessories, etc., Footwear is still the core category that we need to watch the closest. I also chose to break this out at both a dollar and pair level. If any one of the team needs data on other softgoods then we can certainly pull that data but I don’t want to see a summary view turn into a data dump that can’t be synthesized in a matter of minutes. That’s really what the goal of the dashboard should be….a snapshot of the company that can be digested in a matter of minutes and provide a brief insight into the key areas that are critical to the success of the business. If any of these areas fall outside of the Company’s “comfort zone”, then it certainly warrants additional review and the pulling of details that are easily available.

                With respect to our Company, there were 5 key areas that I chose to focus on. However, it should be noted that your approach to any level of EIS reporting should not be static and should be open to change to accommodate the reporting needs of the company. But in planning such a tool, the areas chosen should be at a high enough level that there will be only subtle changes for long-term reporting purposes. For our first generation of reporting, I chose the following areas:

  • Orders / Revenues
  • Operating Expenses
  • Balance Sheet
  • Finance / Working Capital metrics
  • Dealer / E-Commerce metrics

                With respect to each of the sub-areas listed above, it’s important to note the need for brevity in each of these areas. As an example, in Section A above, the intent is not to do a data dump of every area that the company records revenue under.  In our situation, we record revenues at both the International, Domestic, and E-Commerce levels, along with further delineation by Footwear, Apparel, Clothing, Accessories, and Other. For the sake of an EIS platform, the best approach is to take the 80/20 approach where you can get a consistent snapshot of what is happening, if you will, the “temperature” of the Company. Should something be sub-par, it would be apparent within the EIS and there can then be a follow-up with more detailed reporting.  For myself, out of the 30 potential combinations above (Orders + Revenue), I chose to follow only 10. However, the 30 above would represent just the financial portion. The 10 I have included also include metrics on Pair performance. While only a fraction of the total permutations, it will give me an immediate indication if there are potentially greater issues to deal with respective to our corporate performance.

                What’s important to note is that this is not just a “Finance” document; it’s a document that needs to be shared among the Management team and used to prompt discussion or decision making. The data needs to be unquestioned and easily updated. It needs to be a document that other team members are eager to receive and provides them with the necessary “temperature”. Are you achieving that with your current dashboard reporting?

                With respect to Operating Expenses, I chose to include this area since there’s always a need to keep tabs on major expense areas. I’m not interested in just a blended topline number, I’m interested in knowing what is happening in key expense areas. Out of the dozens of expenses, I chose to include only 12 that I would want to track on a constant basis. These ranged from 3rd Party Logistics, Advertising, and Bad Debt, to Professional Services and Travel. However, while the remainders of our reporting metrics will be reported on a weekly basis, these are only being updated on a monthly basis. Then why don’t we just hold this for review in our standard financial reporting? I chose to include because I want our OpEx to be a constant data source that our entire team will be conditioned into being sensitive to and not paying attention to on strictly a monthly basis.  The reporting of the 12 areas I chose, we’ll be able to have constant oversight on almost 85% of our Operating Expenses.

                Next up, I wanted to focus on Balance Sheet accounts.  Again, I wanted to focus on those areas that should be tracked on a constant basis and not lost sight of.  We’re obviously following Cash/Cash Equivalents and Inventory, but I’ve taken a slightly different approach for A/P and A/R. For our Receivables, I chose to focus only on the 90+ column. We’re routinely seeing accounts in the Current to 60-day column, but my blood pressure starts going up when they hit the 90+ column.  I want to know if this column is growing.  Similar approach on the Payables side. I want to know if our A/P group is behind in paying vendors or if we are staying current. I chose to follow the Past-Due column. Similarly, I will also be following the amount of early pay discounts that we are taking with vendors.  I want this number increasing every week. Since we have the ability to easily meet payables, I want to push the calendar a little more and start taking discounts.

                Last, but not least, were the E-Commerce/Dealer metrics and the basic financial ratios. I chose to include newly opened dealers, closed dealers, inactive dealers, as well as 5-key metrics for our E-Commerce efforts. Considering the current environment, I kept the financial ratios to the top level considerations of working capital rations, DSO, inventory turns, etc..  As mentioned in my first post, the intent of an EIS platform is not to be a data dump.

                -It’s intended to give a very top level view of what is happening with the Company.

                -It’s not intended to replace any of your financial reporting.

                -It’s intended to be an indicator of what further reporting needs to be addressed if there is a problem.

                -It’s not a static tool, but one that is dynamic to the needs of the Company.

 

Thanks for reading . . . .

Jeffrey Ishmael

Vendor management – Collaborative or 1-sided?

April 1st, 2009 Comments off

     I have to admit that I didn’t make some friends yesterday regarding the subject of Vendor management, but it really got me thinking about how those relationships need to be managed and whether I need to adjust my approach in the current climate.  After additional considerations, I would say “No”.  My view on this topic is pretty simple, that Vendor relationships need to be collaborative, there needs to be a mutual respect, and there has to be consistency in the approach. After all, this is a business relationship, and while there might be connections on a personal level, it still comes down to appropriate and consistent execution for the business.  I also take the approach that my team should oversee the management of these relationships and I’ll support them in developing their vendor relationships and step in only when necessary.

     One of the situations that happen to table itself happened to be with a 3rd party reseller of software who we contacted to have some modifications done to our MAS-200 system. Pretty simple modifications in the AP module. Something I would normally not get involved with. I had been involved in the preliminary quotes, all seemed well, and I told the group to go ahead with the project. That was, until the the email came back asking me which terms we should be moving forward with. First of all, we usually have pretty standard terms set up within the system for each vendor, so why would this be changing now?  The vendor came back with an “Option 1 of moving to the front of the scheduling queue for a 100% prepayment” or an “Option 2 of 2-weeks out for a 50% prepayment”? What? First of all, what if I was a pending customer ready to have a job done and another customer was able to leap frog over due to a higher prepayment? Second, at $175/hour, there is an abundance of MAS programmers out there at a much lower level to tolerate being pushed out.  Third, are you fully booked right now or not? You can either start the job in the next day or two or your not available till mid-month. Which is it? Option for them; we’ll take the 50% prepayment and you can start immediately, or we’ll look for a new vendor.

     The second situation involved one of our screenprinting vendors who received our letter that we were going to start enforcing terms of 2/10, Net 30 for all our payables. Fortunately, we happen to be in a position that we can take advantage of early pay discounts. The vendor in question came back saying that they could not afford to give up a 2% discount on their product and it wasn’t worth it to get the cash in the door early. Really? They also told me that they had become the “sole printing vendor” for the company and had already given up a 4-5% discount on their previous prices. Great, but that would be tied specifically to volume and the good fortune to be positioned as a primary vendor? Turns out from our buyer, this was also not true.  Atleast we know where we stand with this vendor and can plan future purchase accordingly.

     I’m extremely loyal to my vendors and those that my team determines we need to establish relationships with. That support is long-term and when there’s hiccups we will always work through them, but the support will continue. However, that support is quickly pulled when I determine that the support is not 2-way and we are not engaged in collaborative relationship. There’s too many quality vendors out there to tolerate those that are merely transaction based and don’t look at the long-term benefits of vendor/customer relations. How do you manage your vendor relationships?

Thanks for reading. . . .

Jeffrey Ishmael