Professional Recommendations – Page 2

In Defense of Business Owners: Scope of Responsibility

Many of my fellow small business CFOs and Controllers mistake my singling out a BOSS as one of the main frustration triggers for an ardent enmity towards business owners. The truth is quite opposite. As the matter of fact, most of the time I find myself on the same side as my boss; shoulder to shoulder, fighting the daily war of commercial survival.

Yes, it’s tough to deal with their complex of unlimited powers. At the same time, I always say that business owners create our jobs and that alone merits respect. I also never imply that all CFOs and Controllers are made equal. I’ve met plenty of inadequate, limited, lazy and dangerously indifferent financial execs who damaged the companies they were supposed to guard. In due time I’ll write about them as well.

But we interact with out bosses more than anybody else and that’s why they are prominently featured in my posts. Being a CFO or a Controller makes it inevitable that everything a CEO does or doesn’t do becomes a concern and frequently a touchy subject.

And one of the touchiest subjects is the Scope of Responsibility. I cannot even count how many CFOs and Controllers have complained to me over the years about perceived imbalance between their scope of responsibility and that of their bosses.

This disconcert derives from two sources. First of all, it’s the much-discussed here overwhelming multitasking of the senior financial management.
Secondly, it’s the confusion about what exactly the Scope of Responsibility is. Even though the position’s breadth of influence on the business is important, it is not just the number of tasks and duties you perform. The key factor is the depth of the impact executive decisions make on the company’s future.

The way I always looked at it is as follows. If you are fortunate to work for a brilliant entrepreneur who, given sufficient time and support, is capable of generating ideas that will ensure your company’s prosperity and growth, that should be his ONLY task. I consider it my job then to take away from him all functions I can handle myself in order to free him for what he does best. I don’t let bankers or vendors bother him; I don’t allow him to fiddle with numbers; I don’t ask him to learn the operational system. As the matter of fact, I prefer them not even know Excel. All I want them to do is to create business strategies, network, establish new commercial relationships.

Let me leave you with this simile of sorts. Radiohead’s frontman Thom Yorke cannot read sheet music (neither does Sir Paul McCartney, by the way). His musically educated multi-instrumentalist band-mate Johnny Greenwood have been deliberately resisting for 25 years now to teach Thom any musical grammar out of fear that it may diminish Yorke’s creativity. That’s a great executive support strategy.

And let me tell you: I’ve been to multiple Radiohead concerts through the years and I wouldn’t change anything about Thom Yorke. Nothing at all.

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.

Respect Your Audience: Reflections Triggered by Matthew Good’s Concert at Mercury Lounge

Let's face it – most of business professionals, including CFO's and controllers, like hearing themselves talk. Frequently, we cannot stop ourselves, going on and on about some business matter, or bitching about some subordinate, or superior, or peer. Presentations are too long to hold listeners' attention, pitches are unfocused, emails look like novellas, and meeting speeches are self-aggrandizing. There is no denying – that pervasive affliction of humanity, narcissism, is inescapable.

The sad truth is that by doing this we depreciate ourselves – people see it as overcompensation for hidden insecurities. Moreover, such behavioral tendencies give the listeners a good reason to be dismissive. They will feel disrespected and resist to be receptive.

However, even with that affliction sometimes obstructing our way to successful communications, most of us have enough common sense and professional experience not to offend our audience with outright insults. The nature of our positions forces us to be diplomatic. We are in the business of dealing with brash bosses, prima-donna sales people, sensitive customers, important bankers, strategic suppliers, valuable subordinates, and whoever else the job brings into our habitats. The words we use and thoughts we express have a potential of affecting our company's business in a positive or negative way. So, we'd better be respectful, and, most of the time, we are.

These thoughts kept popping into my head last week during Matthew Good's concert at Mercury Lounge. The whole experience was a bit strange. I've been listening to this Canadian rocker's beautiful music, channeled through his amazing vocal and guitar skills, since the 90s (God bless them!). Now, standing right in front of the tiny stage, I've observed a 40-year-old (looking over 50), kinda balding, kinda pudgy, unkempt man, who managed to down three large glasses of gin in a span of 90 minutes.

It was unexpected, but I really-really don't care what people look like as long as they do their job well. And I've got to say, when Mr. Good sang, it made you forget everything: his age, your age, what he looks like, and what you look like now, and all the shit that happened in 20 years since you first heard him. The trouble was the man sang only half the time.

Dana Carvey once said that all comedians want to be rock stars; apparently, and vice versa. Matthew talked after every song (literally): SNL sketches, whooping cough epidemic in Vancouver, one of his kids being a bastard, postnasal drip, Lance (his guitar Dobby/drinks server/on-the-road chef), hot dogs – what have you. I was standing there thinking, "Dude, do your job, sing. Have some fucking respect – it's midnight on a Wednesday night, some of us worked all day and have to work tomorrow."

It got worse: as the blood alcohol level was rising, his widely known political side started coming out. When he began throwing accusations regarding American government's shadiness mixed with condescending remarks like, "You should know what your government is doing" into the audience (thanks, dude, without your Canadian ass I wouldn't know how to form political opinions!), someone else voiced, "What about your government?"

But at the end, it was an issue related to his own music, with which he hit the ultimate low of disrespect. The exhausted, but still forgiving fans started throwing song requests at him; some from The Matthew Good Band's first album "Last of the Ghetto Astronauts." "There is a better chance for my starting chewing crack than for your forcing me to sing anything from that album. Common, people, admit it – that was crap written by a 24-year-old." This is to those who bought the album and listened to it since 1995, plus many members of the audience who are in their 20s now, yet know every word of lyrics you wrote when they were wearing pampers? How offensive is that?

Essentially, touring musicians are in business of selling their albums and solidifying their fan base, thus making sure that people will buy tickets again and again. In that, they are not much different from other business professionals. The way I see it, they should be afraid to lose their paying customers the same way we do. Alas, Matthew Good thinks differently. Well, I'm not buying next time.

Audit Season Woes

As a corporate controller, CFO, and consultant, I've been on auditees' side of the table for the past 20 years. Yet, I still remember the gratifying excitement of coming to a company as an auditor and testing the depth of my expert knowledge in an unfamiliar territory, quickly absorbing the business's specifics and immediately identifying the scope of testing. Well, Ok, I've been called a "show-off" and "know-it-all" many times, so forget me. Over the years, there were other public accounting professionals (not many, but some), who impressed me with their knowledge and sharpness, but it doesn't happen anymore.

I've been complaining about the decline of the quality of work across all jobs, from customer service representatives on the phone to the cardiologists in fancy hospitals, for years. But somehow I still get very frustrated when I encounter the same trend in my own profession. I cannot even explain why. After all, I am very conscious of the managerial accountants' limitations. The main reason for writing "CFO Techniques" was the desire to fill their knowledge gaps. Just a few weeks ago I wrote about The Unimaginable Abyss of Accounting Ignorance in the small-business environment. So, I should not be surprised when I am faced with the same situation while dealing with financial auditors. Nevertheless, it still gets me.

It's audit season, so in the past couple of weeks I've been helping my client (a young company) to go through their very first independent year-end examination of books and records. It's conducted by a small CPA firm hired before my consulting engagement commenced.

Under my guidance, the client's accountants did what I always advise to do in preparation for an audit (see Chapter 30, What Guarantees Fast and Painless Audit, in "CFO Techniques"), i.e. they loaded the appointed auditor in advance with statements and schedules of data required to make all testing decisions. He definitely had time to prepare well.

The client is an importer of raw materials. So, the revenue/cost recognition and cut-off tests are very important. Accordingly, the auditor gives a list of sales and purchases he wants to test. We provide all supporting documents to verify the propriety and accuracy of each transaction. After a little while the auditor knocks on my door with a bunch of papers in his hands. "How do I know," he asks timidly, "if these invoices have correct dates?"

Inside my head I scream, "Are you fucking kidding me?" But this is not about my frustration, this is about my client. So, I calmly explain that he needs to compare the recording dates with the source documents proving the product's ownership transfer as defined by Incoterms. I go further and demonstrate with one of the selected items: this sales order states CIF (cost, insurance, freight), which means that the customer owns the product as soon as it's loaded on the transport; hence, your source document is the Bill of Lading (BL) attached right here to the Commercial Invoice and the Packing List; the BL's date is the sale's date.

He soon comes back with another file and he is very apologetic, "I am sorry, could you explain this to me again? I never heard of those… terms… before. What did you call them?" I help him out, "Incoterms?"

Will somebody, please, explain to me, since when it's Ok for an auditor, who is responsible to lenders, investors, and other outside users to verify the correctness of books and records, to come to the client without the full knowledge required to perform his tasks? Why is he not even embarrassed to admit that? Why the hell in 2012 it did not occur to him to get his ass onto the world wide web, as soon as he heard the word "Incoterms" from me, and study them?

I guess, that would be too much to ask. Hey, he didn't even know what a "metric ton" was and asked me for the ton-to-pound conversion ratio instead of finding it by himself. He continued coming over, I continued providing him with definitions and rules. At some point he got so comfortable with this teacher-student setup, he even asked my advice on how to "test for prepaid expenses." Seriously? Did he forget that I was their from the client's side, essentially being audited?

And here I have to bring up my book again. There is Chapter 29 in "CFO Techniques" called Choose Your Auditors Wisely… Dear business owners, CEOs, CFOs, and controllers, please, read it if you want to avoid paying $25,000 – $100,000 (average range for small businesses) for low-quality accounting services.

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