Category: Nature of the Job

CFO Folklore: Segmental Performance Analysis


SegRep #1 Regardless of whether your company is large or small, rich in cash or eke out its survival on a tight cash flow, operate with the most sophisticated custom-designed ERP fitted with Cognos or makes do with QuickBooks/Excel combo, if I ask you to pinpoint the exact segments where you lose or make money, most likely the answer is too broad, or intuitive, or incorrect.

Based on my experience, segmental performance is one of the most deficient areas of business analysis.  Ok, the larger are probably doing better than the small ones.  The latter, unfortunately, are clueless 99% of the time.

Then again, what is your segment?  Do we need the Large Hadron Collider to break the business matter into invisible particles?  Of course not, but a sensible breakdown can give an invaluable insight and bring about organizational changes.  And let me clarify that when I talk about "performance," I don't mean revenues, which are easy to track, I am talking about EBITDA – my favorite indicator.     

Familiar to everyone example – CBS Corporation.  Its portfolio consists of 23 separate brands (subsidiaries), including CBS Television, CBS News, CW, Showtime, Simon & Schuster, etc.  Of course, there are separate P&L's for each of these sub-entities. I am positive, Showtime Networks knows who does better Showtime or The Movie Channel.  I am pretty sure they are aware of how much "Dexter," or "Nurse Jackie" contribute to the bottom line.  Moreover, thanks to digital counting of viewers tuned in, they know for a fact how much Gross Revenue each episode generates.  As I said, that's easy – they know how much they get paid for each subscriber.  (Side Note: it's just as easy for the network television, where the revenue is calculated based on the commercial time).

But do they know how much profit (or loss) they make from each episode?  ALL costs allocated, including CBS Corporation CEO's salary?  What, it is not required by financial statements?  We are not talking about  them.  We are talking about magerial understanding of the business.  Is it important?  It's fundamentally important.  Each episode is written by different writers, directed by different directors, some use more effects and extras than others, etc., etc.  This is BUSINESS INTELLIGENCE and those are factors impacting this particular business.   

Here is promised CFO Folklore.  At some point in my career, I accepted a position in a company with national exposure – 14 operational facilities in different states.  They needed me because they couldn't understand why they experienced cash flow shoratges.  The first thing I did was the profitability analysis for each of the locations.  I uncovered that 9 out of 14, have been consistently loosing money for the past 18 months.  

There are, however, inherent difficulties that prevent most financial executives with limited human resources from undertaking this exercise.  First of all, it is not easy to properly define your segments.  It is pretty much a game of optimization between the level of details you would like to have and the resouces you need to achieve it.  The most intense part of the analysis, however, is the selection of proper principles of allocation for all shared costs and the allocation process itself.     

The spreadsheet image is courtersy of E&D CC, Inc.  If you are looking for help with segmental analysis, I recommend  contacting E&D CC – they specialize in assessing reporting needs and designing specific analytical tools related to profitability and costs, as well as budgetary, treasury, viability, forecasting and planning instruments: mzosya.edcc@gmai.com  

Woes of an Overwhelmed CFO


This quote has been attributed to different people, frequently (and erroneously) to even Andrew Jackson, but in fact it was John W. Raper who said,

"There is no pleasure in having nothing to do; the fun is having lots to do and not doing it." 

Oh, man, he sounds healthy!  What a laid-back guy!  No pressure gets to him?  Where do you get that kind of attitude?  I want some.

Because, in professional life of a frustrated CFO or Controller having lots to do and not doing it spells disaster, anxiety and depression, not fun.  As the matter of fact, "not doing it" is frequently a symptom of a psychological condition experienced by high achievers with multiple responsibilities. 

Images Have you been there, in that scary place?  There is so much to do, your subconsciousness tells you that there is no way all these things can be done by you.   Your entire being refuses to embark on all these tasks – you stop doing everything.  You are so overwhelmed you become paralyzed.  Everyday you tell yourself that tomorrow you will get on with it, and then you close your door and play solitaire all day.  In other words, you are on your way to a fully blown burnout.

And if you work in a small or mid-size company, no outside help is coming:  there are no Employee Assistance Programs or Stress Management Trainings.  Nobody will even notice that something is wrong.  You are on your own! 

But, wait a minute…  First of all, take a fucking Xanax and force yourself to use the moment of relaxation it gives you to not do anything at all, but think about your situation.  Do it NOW! 

Aren't you the self-reliant person who always handled your own problems and overcame all obstacles in front of you.  How did you get here in the first place?  How did you come to occupy this executive position?  Where is that person?  There must be some grains of him/her left in you.

Now, take your favorite yellow (or gray) notepad and write down all those tasks that terrify you so much – beats playing computer games.  This very long list is your basis.  Now start the next list. Title it "Delegate" and transfer here all those tasks you can delegate to your subordinates, or other departments.  Every time you list an item to delegate, cross it out on the main list. 

And don't tell me you cannot delegate anything – this is an emergency, you can and you must!  If you are a one-person show, this is the right time to talk to your boss(es) about hiring help.  Go to them with both lists – they might "surprise" you by saying they had no idea your were so overwhelmed.

The remainder of the base list needs to be further divided into four parts:  

  1. Top priority (today and next three business days)
  2. Short-term plan (next two weeks)
  3. Long-term plan (next six to eight weeks)
  4. Tentative plan aka the back burner (next 4 months, or so).

The only list you are going to look at now is that much shorter Top Priority list.  Calculate how many tasks you have there – let's say 8.  If you work like me, your working day is at least 10 hours.  The 4 business days allotted to this list is 40 hours.  This means you have 5 hours for each task.  That's it – start working on the first one.    

Still cannot do it?  Then you are in need of serious help – find yourself a good doctor.

You can find more advice in this post Time Organization as Anti-Frustration Tool.

How to Read People Through Their Communication Styles


If you are a business executive, CFOs and Controllers included, you cannot avoid the necessity of being able to grasp people's motivations based on external behavioral indicators.  Every person we encounter has his own hidden agendas and incentives, which we must decipher in order to be successful.  I previously talked about the effect people's priorities have on their attitudes (see Priorities and Attitudes).  It is a proven fact that humans' motivations can be read from the way they move, talk, look at you, even from the poses they strike. 

Filmmakers frequently speak about the subtext.  One of the basic rules of screenwriting is "show, don't explain."  Some theorists attribute the importance of this aspect to the visual nature of cinematic art. But the truth is exactly opposite: the ability to read subtext is natural.  This is what makes a movie believable and real to the audience: people watch an actor perform (especially, if he is a good actor) and pick up on the little clues of the character's inner-workings, because this is what we do in real life too.  

Subconsciously, we are all capable of recognizing particular body movements and voice intonations as expressions of motivations and intents.  The trick is to find this innate ability in yourself, isolate it, bring it into the prefrontal cortex, perfect it and use it to your advantage.  Start by observing people's communication styles – the fastest way to identify their intentions, to read into their primary concerns.

When people speak in a staccato style and quickly move from one subject on to the next one, what can we tell about their intentions?  Wouldn't it be reasonable to assume that they are determined to minimize the time consumption of every task they undertake or direct, that they driven by desire of accomplishment?

On the other hand, someone who apologizes for expressing his opinion three times within the same sentence and asks to be corrected if he makes mistakes, obviously is striving for amicability.  The ones who wait for your cues or keep quiet all the time are obviously unsure of themselves and don't want to be noticed.  Yet, if someone doesn't say anything, but flares his nostrils and drums his fingers on the desk, don't mistake him for anything else but the passive-aggressive about to explode.  And so on, and so forth.

So, let's go back to the movie-making.  Of course, I had a good reason to bring it up.  Films provide us with an enormous cache of visual references familiar to millions of people.  I have chosen a trailer for Mike Nichols's "Regarding Henry" to illustrate this topic because the 24-year-old screenwriter J. J. Abrams (yes, that very same J. J. Abrams who screwed us out of a satisfying "Lost" ending) used a dramatic turn in the plot that fundamentally affects the protagonist (played by the great Harrison Ford).  His life, attitude, tastes communication style- everything changes within the same movie.  It's a stark example of how a person's inner life affects his behavioral traits.

 

CFO Folklore: My Personal Mantra


In my earlier post Why Do I Work So Hard? I talked extensively about conscientious attitude towards my CFO responsibilities.  However, time and again I find myself worrying about matters, which are not really under my direct control: lazy marketing people, self-serving sales force, inept operations, and (again and again) bosses who constantly jeopardize their own business.

And it’s not just me.  There are a lot of people in my network, who display the same level of care.  We frequently become each others’ sounding boards when the angst gets too overwhelming.

So, here we are at lunch.  My friend JM ranting about VP of Ops fighting with his girlfriend on the phone for three hours, while the production manager was waiting for him.  I am sharing the pains of trying to catch the President to release a $1M wire transfer and his dodging me because “he had enough for the day.”

And it’s not like we don’t have anything else to discuss.  Most of my business acquaintances are entertaining individuals.  JM, for example, has an incredible sense of humor.  I am a theater and foreign cinema fanatic.  Somehow, my banking relations are all classical music buffs.  We all read Jonathan Franzen and Michael Cunningham.

And yet, we talk about problems at work every chance we get.  Most people, when they stop for a second and think about it, get very angry and frustrated with themselves.  Frequently at the end of these conversations I hear, ” I don’t own this business.  It is not my fuck up.  Am I supposed to butt in on other people’s responsibilities? Why do I even care?“

Me? I don’t get frustrated about my caring so much.  And I tell my concerned peers that they shouldn’t get upset with themselves either.  You see, years ago I figured out that the conscientious working attitude, the ambition to succeed, the striving for merit-based rewards and the care for the entire business – they all go together.  They are inseparable qualities and indifference doesn’t fit into the picture.  If this is who you are, you will always care.  

Moreover, in small business environment, this very combination of qualities is what brought you to where you are.  This is what separates you from others.  This is what got you into the CFO or Controller chair with the correspondent salary and perks attached, which, in their turn, define your living standards. 

So, I’ve created myself a mantra: I CAN’T SURVIVE ON “I DON’T CARE.”  

There is a compensation threshold, which, when crossed, brings you into the stage of your professional life, where hardworking people care about the well-being of their employers.  I’d say right now it’s somewhere around $70K a year.   At $200K a year, you either care a whole lot, or you are a fraud, or you are working for a big-size mastodon.  So, ask yourself, “Can I survive on a $70K salary?”  And if you can, go for it – not caring is a bliss.

CFO Folklore: “The Servant of Two Masters”


440940251img1_mediumTwo-headed bosses are common when people work for businesses founded by relatives, which, I am sure, can be a source of fascinating undercurrents and rivalries.  I invite my readers to share relevant stories.

I, on the other hand, worked (more than once) for equal partners who were not related.  Each of the duos consisted of individuals so different, it was a miracle they stayed in business together.  As a CFO, forced into the middle of the co-owners dynamics, I was able to observe common behavioral tendencies in the bosses themselves and people around them.

Business partners' alliances are usually symbiotic.  One is an idea generator, the other is an implementer.  One is brains, the other is money.  One can close a deal in seconds, the other makes sure the company performs.  They always complement each other, or they wouldn't be in the trenches together. 

Either will squeeze all juices out of you, and yet their personalities differ just as much as their abilities.  One is usually more diplomatic, better with people, logical, frugal.  The other is brash, careless, erratic, a lavish spender.  They don't see eye to eye about the majority of business issues and frequently talk to their CFO or Controller separately, presenting contradictory positions.

260 years ago, in "The Servant of Two Masters," Carlo Goldoni depicted the delirium of working for two employers who try to find each other without knowing they live in the same hotel.  Sounds familiar?  Poor Truffaldino is so anxious, he develops a stutter.  Imagine the hilarity!  Well, at least he got double wages.  When your single-salary job depends on maneuvering two conflicting bosses, you don't feel like laughing. 

Most people end up aligning themselves with one of them.  Sometimes, it works out in a natural way: if one owner oversees Production, while another spearheads Sales and Marketing, it is obvious where VP of Ops and VP of Sales allegiances will lie.  

Even when it's not clear-cut, people have a tendency to navigate with their issues toward the boss who is perceived to be "nicer," regardless of his preparedness to make relevant decisions.  As the result, you may end up with a wrong solution, or the issue is brought to the other owner's attention anyway; only now he knows that you tried to bypass him.   Either way, you are screwed.

CFOs and Controllers should not form any alliances when they work for two partners.  When monetary matters are concerned, both must be kept in the loop.  In super-important cases, get them into the same room, whether they like it or not.  I am known for bringing bosses into the office from their summer residencies in the middle of July, when I had to.

Of course, you have to earn your right to do so with hard work and authoritative success.  You also need to be very diplomatic with both of them – either must think you prefer deal with him and inform the other out of courtesy.  It takes Machiavellian skills to boss the bosses.  Otherwise, you will end up stuttering, like poor Truffaldino.