Practical Advice – Page 5 – The Frustrated CFO

Do Yourself a Favor and Buy Your Boss Some Ginkgo

I am currently reading Jennifer Egan's A Visit from the Goon Squad. Excellent book. It's categorized by booksellers as a novel, but it is essentially a collection of stories stringed together by each character's connection to the book's most realized protagonist – the music-industry executive, Bennie Salazar. I love that kind of staff. Yet, it's not the author's writing skills that make this book important to me, it's the vivid emotional familiarity of people and situations. Good writers manage to reach their audience in that way: you read a dialogue or an internal monologue and your heart aches with the painful recognition.

Let's leave the introspective explorations for some other discussion, though. In light of this post's title I want to describe one particular scene in the book that seems to be taken straight out of my own experience with many a boss.

Bennie Salazar, the President of the record label he founded some years ago, is in his car with his right-hand and catch-all Sasha. They just listened to the new material of one of the company's signed acts. Sasha rules the two punk sisters unlistenable. Bennie woefully wonders, what happened in the two years since he'd signed them on. Sasha reminds him that it has been five, not two years. She even gives him a precise time reference: she went to the contract signing straight from Windows on the World, i.e. when the Twin Towers were still intact.

Oh my God! Did that ring a huge bell in my head? Situations like this occurred with uncanny regularity throughout my entire career, no matter who the boss was. We could be in the meeting with some bankers, for example, pitching the expansion of credit lines, and I would show a chart explaining how the company has been adding $40 million to its volume annually for the past five years. Afterwards, the boss would ask me, if those numbers were true. Are you fucking kidding me? You've only seen the chart like a million times.

And then there are endlessly repetitive requests: Could you send me that report for May (just sent it two days ago, but he doesn't recall)? What was the bottom line in that forecast you compiled (what did you do with your copy of it)? Let's finalize that new venture prospectus, okay ("we" did day before yesterday – it's on your desk)? And so on and so forth.

Sometimes it seems that the stress of running their own businesses causes these people to experience some form of amnesia or the early onset of Alzheimer's. But that's not it, because their brains appear to be functioning just fine otherwise. The fact that this memory issue is such a frequent occurrence among the entrepreneurs of various cultural and social backgrounds, operating in different industries, seems to indicate a psychological rather than physiological phenomenon.

It's my opinion that, when it comes to the retention of any type of information, these people have a luxury of allowing their brains to be extremely selective. It's not like they make a deliberately verbalized decision, "I choose not to remember this." But somewhere, deep in their subconsciousness, the opportunity to rely on various subordinates as human data-banks renders the memorization of routine data redundant. It doesn't matter to them that this makes them look somewhat slow. The value of your time wasted on verbally repeating and emailing the same things over and over again matters even less.

It's possible that the general improvement of memory functions attributed to Ginkgo can lower this mental resistance to absorbing information. It may force certain tidbits to stick inside automatically. Hey, if you are desperate enough, why not try it? Just put it on his desk when nobody is looking and see what happens.

An Aggravated Case of “The Servant of Two Masters”, or Working for a Married Couple

They say (oh, those mysterious "they" of English language conventions – they do talk a lot), that there is nothing more expensive than a free advice. I believe so too. It's impossible to provide good advices without looking into particularities of each case, and nobody would do that for free. That's why within these free-for-all posts I usually go with sharing of knowledge; if it's appropriate – with suggestions; and only if a statement can be safely generalized, I call it an advice.

With that in mind, I am confidently offering the following as a friendly advice: never say that you "wrote the book on" whatever it is you think you know through and through. It's never true. None of these proverbial books of expert knowledge are ever finished. Just when you think that you can close it and send it to the printers, there is a need to insert a new blank page and relate a freshly unique, never before experienced tale.

One of such areas of expertise for me deals with typical characteristics and behavioral quirks of the entrepreneurial executives - those to whom I simply refer as "bosses." My career allowed me to observe many of them in different situations – as my employers, clients, business and social relations, even charity connections. I honestly thought that, based on this experience, I can predict the behavioral patterns of most business owners, including those sharing power and governance as partners.

Alas, my anthropological study of bosses did have a gaping hole, which I would have never discovered if my life didn't expose me to peculiar antics of a married couple as business partners. As it turned out, all regular characteristics of executive co-existence described in my previous post "The Servant of Two Masters" still apply, but with some very specific aggravating additions.

No matter how hard they try to keep it professional, they can never completely eliminate marital undertones. While they usually manage to control the urges of affection, it becomes more difficult for them to rise above the intimate knowledge of each others' weaknesses when conflicts flare up. I am not necessarily talking about full-blown battles of Lucy-and-Desi magnitude with hammer injuries. But take my word for it – witnessing spousal tiffs and spats cause extreme discomfort; to the point that members of the executive board wish they were Hogwarts graduates with apparition licenses. You just want to disappear.

One of my biggest complains about dealing with multiple owners always was that, unless you get them all in the same room, you must work with an assumption that what you explained to one is unknown to another. You will need to repeat everything to each partner individually. Well, don't assume that the situation is different just because the execs belong to the same household. It's even more unlikely that they will share your info at home.

And then there are those very special casual dismissals husbands and wives reserve for each other – shrugging-offs and waving-offs, which are frequently more harmful to one's ego than verbalized insults. The shit gets especially intense when the issues of personal value to the business or equitable compensation come up.

All you can do is to pretend that you have gone momentarily blind, deaf, and inattentive – didn't see, hear, or notice anything. More importantly, don't take sides: eventually your allegiance will be discussed at their kitchen table, or in bed, and both of them will hate you.

The Trade Finance Prison

Theoretically, you can imagine an international business operating without a trade finance facility – no letters of credit, document negotiations, confirmations, etc. Your suppliers would be more than happy if you always pay in advance. On the other side of the equation, there are some desperate for product customers that you may be able to coerce into pre-payment plans, but, if you want to grow your volume, you will most likely end up extending them unsecured credit terms instead.

Let's pretend for a minute that we don't see the elephant in the room – the cost of working capital, which, under this stretched cycle of paying way before the product is received and collecting long after, turns into a painful burden on the profit margin. Let's ignore it and agree that yes, it is possible to conduct business in this way, especially if the company is cash-rich. It's possible, but dangerous and stupid for reasons too numerous to elaborate in one blog post. I'd say that the top 5 hazards of such modus operandi are as follows:

1. Risk that a foreign supplier will not deliver the product at all.

2. Risk that he doesn't comply with the terms of the purchase contract and delivers wrong goods of unacceptable quality and origin, in random quantities, too late or too early.

3. The danger of not receiving sufficient and correct set of documents that would allow you to claim the ownership.

4. Customer non-payment risk, which is always there when you give open terms, but especially if the payment is anxiously expected to come from abroad.

5. The overwhelming difficulties and costs of international litigation to recover your losses.

To mitigate these risks you need instruments that will protect you and an intermediary that will defend your trading fort. And that's when the trade finance divisions of various banks and financial institutions come into the picture with their Letters of Credits and related services. They can step in and be your guardian against the risks.

A Letter of Credit defines all conditions of purchase/sale, including documentary requirements; and only if these conditions are met, or when discrepancies are accepted, the money will exchange hands. So, the reality is that, you can have $100 million of free cash on your operating account, but if your business has an international exposure, you will end up engaging in Trade Finance relationships one way or another.

The trouble is that the banks know you need them and their benefits come with a price and many strings attached. Even if you only accept your customers' LC's, the cost of advising and processing services may be as high as 0.5% of the transactional value. If you buy product with LC's, then the costs could be as high as 2% (banks love this lucrative business). Yet, that's not the most strenuous part of the arrangement.

When a bank issues a Letter of Credit on your behalf, it takes an obligation to pay to the supplier even if your company goes bankrupt. Therefore, trade finance facility is essentially a credit line (most are utilized by LC's and advances alike). Obviously, to obtain any sizable credit line you must go through a grueling due diligence and you have to pay for it too: field exam, the bank's and your own attorneys' charges, closing fees – $10-12 million facility may end up costing around $150-$175K.

And even that is not the most painful part of the deal. The trade finance Credit Agreements are full of covenants and conditions that restrict your capital distribution, debt acquisition, treasury, operational management, and even dictate how the business is conducted. The banks demand collaterals and guarantees, including personal pledges from owners and their spouses. There are strict and voluminous reporting requirements.

And yet, we work very hard to get ourselves into the Trade Finance prison in order to facilitate our employers' commercial activities. The only thing we can do to ease the pain is to bitch and moan about the banks – a regular exercise of international-business CFO's around the world.

Ten Reasons Why “CFO Techniques” Is a Must-Read for Small-Business CFOs

Reason #1.

"CFO Techniques" was NOT written from an academic perspective, such as of a typical university professor with a consulting-for-large-business on the side.

On the contrary, it WAS WRITTEN by your fellow CFO, who earned her professional stripes in the small-business trenches. During more than 20 years of this hands-on experience, with the last 18 in CFO and Controller positions, she was fortunate to gain exposure to all facets of financial management and organizational administration. Just like the most of you, she knows only too well what it means to wear many hats at the same time.

Reason #2.

Yet, the author did not loose a constructive touch of a theoretician. In writing the book, she employed her:

in-depth knowledge of the fundamental principles that govern all areas of corporate accounting and finance,
methodical approach to all tasks that compile ever-expanding scope of a CFO's responsibilities,
and ability to dissect the cause and effect relationships of various concepts.

The result is the crystallization of the vast experience into a streamlined functional system, easily adaptable to various types of businesses and industries.

Reason #3.

"CFO Techniques" doesn't try to rehash official regulations, statistical information, bits of hot technology news, results of narrow studies, and such. The book's mission is to spotlight the most important areas of a CFO's or a controller's functionality:

Reason #4.

These professional cornerstones are broken down into crucial components described in bite-size, easily digestible chapters written in a fun and lithe language. The book presents the most complex financial and accounting concepts in comprehensive forms, which can serve as introductory aids for those who just attained their first controllership appointment and as concise refreshers for seasoned professionals.

Reason #5.

It is an unfortunate truth that millions of small businesses struggle (and frequently fail) to survive not because they are neglected by owners and managers, but because these hard-working people simply have no clue what exactly is wrong with their companies, where are the weakest points, which areas require immediate improvements. Smaller enterprises suffer the most from the lack, even complete absence, of business intelligence and performance analytics. "CFO Techniques" is a part of the author's personal crusade to help small and mid-size businesses by providing them with survival tools (analytical, budgetary, procedural, etc.) that don't require expensive and complicated software.

Figure 25-1

Reason #6.

One of the most unique and valuable devices offered within the book is the proprietary chart

INCOTERMS FOR ACCOUNTANTS.

Originally developed by Eclectic & Dynamic Controllership Consulting (E&D CC) specifically for businesses involved in buying and selling goods, it expands the definitions of standard Incoterms to include such accounting notions as title transfer rules and description of applicable source documents, thus accommodating needs of proper revenue, COGS, and inventory recognition.

Reason #7.

One of the main underlying themes of the book is the necessity for small-business CFO's and controllers to raise themselves above the bean-counting stereotype and become critical thinkers, indispensable members of the executive management team. "CFO Techniques" emphasizes this pressing demand throughout every section and accentuates the tasks that may facilitate such transformation.

Reason #8.

While shedding new light on the day-to-day routines and spinning conventional accounting and finance tasks as crucial and indispensable cogs in the business machine, the author's functional system gives equal rights to new categories of CFOs responsibilities, such as company-wide Information Technology Management, Risk Control, and Strategic Planning.

Reason #9.

The book takes a holistic approach to multi-faceted positions of CFOs and controllers and supplements specific structural guidelines and practical functional advices with discussions of more general topics applicable to any senior professional operating in private-business environment. Among others, it includes observations and suggestions on how to deal with people on different level of corporate hierarchy and what changes to expect in your future, even if at the moment you feel 100% secure.

Reason #10.

Even if you don't learn anything new, or if you'll find the book not applicable to your specific professional niche, at the very least you can entertain yourself with the multitude of eclectic cultural references and business insights from the author's personal experience woven through the book's text.

Ten Reasons Why “CFO Techniques” Is a Must-Read for Entrepreneurs

Reason #1.

You are a part of a proud cohort of just a few millions of people who summoned their courage and said, "I will not work for the Man anymore! I will be my own boss!"

While your company is growing, it will need to keep its overhead lean. Meanwhile, you can use "CFO Techniques" as a surrogate for a seasoned executive that will provide you with clear guidelines for financial and administrative management.

Reason #2.

Don't let the title fool you. "CFO Techniques" is not a bean-counting manual. It's written with a view to achieving commercial success and places business considerations ahead of everything else.

Reason #3.

It will arm you with a flexible framework for structuring your business in a logical and sensible way.

Reason #4.

"CFO Techniques" is not an academic textbook either. It manages to shed new light on various aspects of finance and business in a fun and easy language. The book is organized into a bite-sized chapters sprinkled with familiar cultural references and illustrations from the author's professional life.

Reason #5.

Yet, it's packed with practical advice,

instructive suggestions, step-by-step guidelines,

checklists,

and visual examples.

Reason #6.

"CFO Techniques" will provide you with a comprehensive breakdown on acquisition of capital resources necessary to sustain and grow your business.

Reason #7.

An entire section of the book is devoted to assessment, reduction, and transfer of the internal and external risks your company may encounter in a normal course of business and in extraordinary circumstances.

Reason #8.

"CFO Techniques" will show you that one of the most critical determinants of whether your company will fail or prosper is the active attention to its performance. The book rejects the rigidity of the uniform approach to business intelligence and underscores the importance of selecting specific indicators that will have the most significant impact on your decision-making process.

Reason #9.

Anticipating your furture needs, the book describes the fundamental steps of strategic planning and basic techniques for explorting opportunities as well as diminishing external threats.

Reason #10.

And when you are looking to hire a CFO, a valuable member of your executive team, the book may serve you as a benchmark in evaluating the candidates' breadth of expertise and depth of knowledge.

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