Posts Tagged ‘CorpFin Cafe’

When Careers & Lifestyles Fail To Diverge…

March 22nd, 2013 Comments off

No big messages here this morning, only a little break from the usual Finance-laden topics and a self-reflection on career. Everyone I talk with seems to strive for that balance between their career and their personal life. Much of this has to do with the lifestyle they lead outside of the office. In my case, I’ve been fortunate enough to be involved with a number of companies that were actually lifestyle drive companies. DC Shoes, O’Neill Wetsuits, and GT Bicycles to name a few.  What was different about those companies is that emphasis was on Lifestyle as opposed to running the business and having the lifestyle be a fantastic complement to the results being achieved. I’ve been fortunate enough to develop a career that seems to aligned with the lifestyle that I lead outside the office….Cycling.

Huge difference you say? How can you even begin to compare Cycling with the CFO roles that you have held? That’s all finance-related, accounting driven, with some boring operational elements mix in…right? Pretty much the case with my cycling. If you take my approach to cycling, it typically is not about getting out for a little ride on the weekends and enjoying the sunshine. It’s a nice derivative, but it’s not the goal. My goal has always been the pursuit of relentless progression and seeing improvements in my performance. There’s a “P&L” to manage when it comes to my cycling. There’s “inputs” and “market conditions” that will affect my performance and I need to take those into consideration when preparing for a ride or analyzing the results.

Revenue. My revenue equivalent is my wattage number. This is the power that I am able to generate during a training ride or race. There’s no altering this number…you either deliver or you don’t. Ever since I was introduced to my first power meter 5 or 6 years ago I’ve been hooked on the data it provides and putting my efforts into perspective. Just like revenues, not all power figures are created equal. There’s the sub-measurements that include power:weight ratios, average wattages, normalized wattages, and your breakouts at specific time increments. All monitored over time and taking into account key events. Sound familiar?

Cost of Goods.  As I monitor my cost of goods with my P&L at work, I have to monitor my “inputs” in the same way. The obvious, and primary input, is nutrition. Are you “building your product” with B-grade quality and not eating appropriately or are you using good quality so as to avoid issues down the line? Have you made adjustments to your positioning? Have you completed the necessary pre-race preparations? If you have a crappy Quarter of results due to mismanagement of your inputs you can’t get that Quarter back…it’s gone. As in business, you need to maintain your momentum and capitalize on the results.

Operating Expenses. There are countless other “expenses” that need to be managed if your to achieve the results that you want. In my case, since I’m obviously not a full-time athlete, I need to deliver on the expected results in the office. There’s no compromising this. That’s why I’m up at 4a for my trainer workouts so I can still be in the office by 7.15a. Sleep…another expense that needs to be managed, which perhaps is also an input. There’s give and take…I’m up at 4a…but lights out by 9p and with as little deviation as possible.

Capital Expenditures.  Let’s not go there. Carbon is not cheap, but it’s a consideration to the results. As in business, if you’re not prepared to make the necessary equipment investment, then you’re not going to achieve optimal results. At the level I’m trying to race at, you can improve your wattage figures, but without the right equipment, you’re simply not going to win or have a top result for the day.

Net Profit. What was my actual wattage achieved? In consideration to my forecast, the “market conditions”, and my “inputs”, did I achieve the expected outcome? Last night I did a time trial at the Great Park here in Irvine. My previous wattage PR for the course was 309w. I was looking to improve this by 1% to 312w. At the end of the day I missed it by 1% and achieved only 306w. However, I also set a new time PR by 1% due to adjustments I had made in my fit and maintaining more discipline on positioning during the race. At the end of the “Quarter”, I hit my “Net Profit” figures, albeit with some consideration in the mix getting there.

When you boil it all down, the elements of my lifestyle outside of work really aren’t all that different from what I do in the office. I’m fortunate enough to love the career I’ve fallen into, which shadows the lifestyle I lead out of the office. While I look at my cycling as my “out of office therapy”, it’s only an additional reinforcement of the disciplines of striving for continual performance improvements.

Thanks for reading…

Jeffrey Ishmael

Are You Incessantly Busy or On A Defined Path…?

March 8th, 2013 Comments off

Regardless of whether you are working corporate environment or a smaller start-up, it’s sometimes easy to lose sight of what you’re actually working towards. The fortunate position of working with a private company is that you’re not slaving to, and managing towards, previously disclosed public guidance for revenues and earnings. Rather, you’re committed to delivering on the longer term commitments made to your shareholders and financial backers. Generally, if a deliverable has a slight calendar shift it’s not going to result in dire quarterly consequences. However, if you were to come in on any morning and pause for a moment, would you be able to review what your top deliverables are for the Quarter? What the game changing tasks are that are going to move your company forward?

At the front end of each Quarter that is exactly the drill that I go through in determining what the company and the staff need from me every Quarter. It has nothing to do with processing A/P, processing payroll every two weeks, or even providing oversight on the Forecast process, but the key foundational or strategic items that our business will need to thrive down the line. For me, those key items have been the implementation of CRM platforms, financial reporting platforms, labor utilization forecasting, and the establishment of internal operations that will ultimately support our Sales & Development team. While not necessarily financial or accounting in nature, they are the core foundation of what will allow our company to prosper, and in the end, will also have a drastic impact on our current and future cash flows. There’s nothing more critical.

Like today, you tend to have those moments where you’re getting nickeled and dimed with tons of smaller items. Smaller items, that while tedious, are necessary to moving the company another step forward. It’s at that point that all you need to do is run a quick check on how you’re progressing against those quarterly goals and if you’re tracking to deliver. While every day is an important day in the life of a start-up, taking a day to address the general minutia shouldn’t derail your ability to deliver on what is promised for the Quarter (oh that nasty “promise” word again…). Ultimately, you just need to be able to come in each morning and run that quick assessment on how you’re tracking. In the end, you can be incredibly busy on a daily basis, but at the end of the Quarter, are you going to be happy with what you’ve delivered and have you put your company in a stronger position?

Thanks for reading…

Jeffrey Ishmael

There Is No Immunity From Accountability…

March 1st, 2013 Comments off

Idealistic and possible or just a pipe dream? I’ve never started off one of my blog entries with a question, but I started thinking about this statement while out on one of my training rides. I started thinking about some of the past companies I had worked with and some of my “peers” that were responsible for specific divisions or line offerings, who Quarter after Quarter, continued to report results that were not only below an original Budget, but below what they had previously made a commitment to achieve. Not at just a revenue level, but at every level of the P&L. Dare I say “promised” to deliver? Ultimately, what led to the continued support of these individuals was either their relationship with a key executive, or in other cases, a lack of motivation and performance by their Director to make the necessary change. Without an inherent drive for results and improved performance there emerged a tolerance for mediocrity, which ultimately, affected the overall performance of the company.

Don’t get me wrong, it would be a pretty challenging situation to have a company full of relentless Type-A, performance driven individuals. There does need to be a balance in the composition of the staff, but there are also key positions, that in the absence of delivering on key initiatives have much broader implications to the performance of the company.

Whenever I have made a hire that comes from my direct network it’s a direct reflection on not only my responsibility as part of the executive team, but also a reflection on my reputation should that person not work out. Unfortunately for that person, they’ll actually have an even higher level of accountability to perform as I don’t want to have to walk out a hire that I was responsible for. I know it will happen eventually, but I’d like to delay that situation as long as possible. Regardless of whether they are part of my network, or I’ve grown up with them, or ride with them, they need to deliver on the roles and responsibilities for the position that they are being hired into. Without their delivery, they risk impacting the results of the company. There’s obviously an inherent responsibility on my part to ensure their skills are a match for the position, they possess the appropriate motivation, and if there are any deficiencies discovered in certain areas, it’s my responsibility to develop a development plan.

Moving forward, what happens when a hire is made and you’ve realized that the either the skills have been misrepresented or they are simply lacking the proper motivation to deliver what is expected. Very simply, it’s time to make a change before more resources are squandered and you’ve potentially jeopardized timelines or the commitment you’ve made to others. The situation is seldom black & white and easily interpreted. Is it a smaller start-up, as I’m currently working, or a multi-divisional corporation, as I’ve experienced in the past.

In the case of the start-up, there is little room to hide. There are no firewalls. Your deficiencies will quickly be seen if you fail to deliver. Make no mistake about it. You better be taking an honest look in the mirror before committing to a start-up.

A larger company? There’s certainly plenty of room to hide and work under the radar. In fact, if you’re a “friend of” someone, you can usually exploit that situation to do only what is needed to get by and likely sustain a stellar level of mediocrity. The other damage done here is that the skills shortfall is recognized sooner by surrounding colleagues and usually results in a lack of peripheral support in accomplishing departmental goals, which then further erodes morale. More often than not it either isn’t addressed or can take years to play out before a new catalyst is present to make the necessary changes.

I can only hope that in the future that I would promote an environment that allows a colleague to speak openly with me if one of my hires or a recommended candidate was not performing. My responsibility is to delivering the results that I have promised and not to create a de facto subsidy for colleagues who don’t have the skills or motivation to find a job on their own. I want to hire motivated, resourceful and performance driven individuals. What about you? Are you promoting immunity from accountability?

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. . . .

Do you have your financial diagnostic checklist?

September 25th, 2008 Comments off

As I start getting situated into a new CFO position, the first thing I do is run through a preliminary diagnostic of the processes in place, the quality of the information, and the depth of information that management has at their disposal for key decision making. As I’ve mentioned in my posts on internal audits and other control-related commentaries, I want to know what my immediate areas of risk are to the firm and address them immediately. While I have a much more comprehensive list, some of the areas listed below are those I start addressing in the early stages.

-Review of the most recent audit report for insight on potential issues.
-Skills assessment of the existing staff and their commitment levels.
-Review of current systems and the ability to extract accurate reporting.
-Review of all working capital elements and exposure to potential write-offs not recognized.
-Determine the health of current bookings and pending shipment pipeline.
-Assess any current or pending litigation issues.
-Assess the current banking relationships and determine potential issues.
-Assess the dynamic among the Executive team as well as the Board.
-Determine if overall compensation levels are in line or if there is risk to a broad-based increase.
-Review current insurance levels and confirm coverage levels are appropriate.

After reviewing the list above the first question is “Why wouldn’t these items be questioned or reviewed during the hiring process?”. In fact, they should be, but as we all know for the interview process, there’s the process of kicking the tires when you’re on the lot and actually getting a feel for the performance of your new purchase after you’ve had it for a week or two. This is not necessarily a negative situation, but sometimes the Company wants you as bad as you might want the position and you might only get that 80% view. Regardless, if you enjoy what you do and you appreciate a challenge, make the most of it and ensure that the efforts you commit are those you can be proud of and strive for nothing less than success.

Thanks for reading . . . .

Due diligence doesn’t stop at the financials. . . .

September 22nd, 2008 Comments off

This week I received my new copy of “The Deal” magazine, which focuses on all activities that are M&A related. One article that was a pretty enjoyable, not too mention dramatic read, was about the path that a Las Vegas-based company, Xyience, has taken in its path to raise capital and achieve sales goals. The name of the article, “Rumble”, followed the various paths of investor fraud and malfeasance that had occurred over the years. It also detailed the history of it’s main executive, Russell Craig Pike. The article documented the various entities that Pike had been involved with and his history of criminal fraud. The biggest question the article left me with was how on earth did this individual continue to raise investor funds and how none of the investors, atleast it appears, did any type of due diligence on the company and the executive team.

The simple concept of due diligence shouldn’t just stop at the financials, but should extend to all aspects of securing resources for your organization. One of the areas that I put in every effort to ensure integrity is in my personal network. Everyone manages their network differently, but I put a significant effort into my LinkedIn profile and the contacts that I keep. There is no one person that I add to my network that I haven’t met with directly or that shares multiple points of contact directly within my network. I also want to make sure that I follow the work of my contacts and the levels of service they provide if I make a recommendation. And these efforts are just for service referrals. When it comes to funding activities, I would advocate nothing less than a complete background and reference check. Know who you are doing business with, their history of success, and their reputation.

Looking at investing in a business, purchasing a business outright, or entering into a strategic partnership? You should know exactly who you’re going to be risking your reputation and funding on. After all, due diligence doesn’t stop at the financials . . . .
Thanks for reading. . . .

Jeffrey Ishmael

Corporate valuations – Premiums start w/ the foundation

September 18th, 2008 Comments off

Some recent conversations and emails have prompted discussions regarding the valuations placed on a company and how to move towards achieving a premium. While there are some PE / VC firms that seem to have their “formula”, the process of applying a valuation is a very fluid process that is affected by an unlimited number of elements. The most obvious are trends within an industry, the company’s market share within that industry, as well as the market’s view of the company in question. There dozens of data points to start with. One thing is for certain….securing a premium valuation does not happen over night. It starts with methodical planning that begins with a solid internal foundation and extends to the external efforts directed at satisfying the customer base. It’s a journey and not the result of impatience.

This is not rocket science but it does take the formulation of a specific goal and a disciplined approach. Whether your company is working on a succession plan or working towards an acquisition, discipline is the key. And it’s not going to be just a discipline focused on financial results. The discipline has to start at the operational foundations of a company. The potential buyer of your company does not want to inherit a myriad of headaches or a company that needs a complete facelift. They want a company that will be a complement to their bottom line, their operations, and will be accretive in a very short amount of time. Any areas that are viewed as a “fix” are going to bring down your valuation.

1. What is the state & accuracy of your budgeting, forecasting, and planning process?
2. What is the quality of your working capital elements? Inventory, A/R, etc….
3. What is the quality of your employee base and their skill sets? Tenure, degrees, etc.
4. What is the extent of processes documented within the company?
5. What is the quality of the information systems that are in place? Quality of data….?
6. What is the state of the customer base? Strong relationships, reliance on one customer….
7. What is the state of the vendor base? Is there any single source risk……

This is far from any type of an exhaustive list and the typical due diligence checklist will make most managers heads spin. When these elements are not in place and they need to be addressed last minute before any type of a potential deal, it will typically result in mistakes or the identification of weaknesses in the business. It also means that the efforts of management will be pulled away from the day-to-day operations, which might result in decreased short-term performance. The few issues listed above cannot be remedied in a month or two. They need a much longer planning window to address. When these elements, and many more, are dialed in it will result in a much higher premium in placed on the entity. Strong foundations result in premium valuations.

Thanks for reading . . . .

Jeffrey Ishmael