Three Things CFO’s Can Learn From le Tour de France

Logo-Le-Tour-de-France-100thI am a huge fan of football and most other popular sports, but my favorite televised sport of the year is the Tour de France.  It’s a grueling three-week, 2,000 mile test of skill, stamina and teamwork that often comes down to who wants it more.  It’s beautiful to watch the sweeping helicopter views of the peloton careening through switchbacks on the side of a gorgeous mountain or splitting a roundabout in a quaint European village before weaving back together at high speed like a school of fish.  On top of all that, it’s steeped in tradition, the fans are nuts, the crashes horrific, the announcers (Phil Liggett and Paul Sherwin) are British-accented poets, there’s something for everyone really.

Another nice feature is due to the time difference you can watch it live each morning in California before you start your work day.  This got me thinking about what lessons I could learn from the Tour de France and apply in my role as a CFO.  Here are three:

  • When climbing a mountain or a mountainous task at work, break it into manageable sections.  The top of the mountain may seem insurmountable, but getting around the next turn never seems so bad.  The same is often true for CFO’s in work situations such as a merger or ERP implementation.
  • Know the road ahead and understand your competitive environment.  Tour riders need to know the course and their competition so they can respond to an attack or take advantage of an opportunity when it presents itself.  CFO’s need to position their company to be able to respond in the same way.  That’s why financial planning, forecasting, benchmarking and SWOT analysis are so critical.
  • Work as a team and recognize the efforts of your teammates.  Team members block the wind, keep each other fed and hydrated, hand over their bike in the event of a mechanical breakdown or crash, or whatever it takes to get their team leader to the finish line.  The guy wearing the yellow jersey is always quick to acknowledge the contributions of his team and share the glory with them.  CFO’s need to do the same and encourage that type of teamwork throughout their organization.

Remember these three tips and they’ll be kissing babies and throwing soft cheeses on the Champs-Élysées in no time.

Inspiration can come from many places.  For me, each July, it comes from the Tour de France. What inspires you?

Management By Dumpster Diving

ManagementByDumpsterDivingI met with a middle market company last week.  It was owned by two charming brothers who had grown it over 20 years into a successful $30 million manufacturing business.  We were discussing preparing the company for outside investment.   If you ever listen to the NPR radio show Car Talk hosted by the venerable, Peabody-Award winning Tappit Brothers, Click and Clack, you have an idea of the type of guys who owned this business and how much fun I had talking to them.

While touring the facilities, one of the owners was talking about their differing management styles and said his brother practiced what he called ‘Management By Dumpster Diving’.  Each morning, he would tour the facilities and each time he passed a dumpster or waste can, he would poke his head in to see what was there.  It was a 24-7 operation, so this was his primary way of determining the waste and efficiency of the operation the night before.  The dumpster diving brother claimed he learned a lot of interesting information about his company and employees over the years.  The other brother claimed he was preparing for a future life on the streets!

This highlights what I love about entrepreneurs and why they need to make changes when they bring in outside investors.  Entrepreneurs are there everyday, doing whatever they need to do to grow the business, taking risks, getting dirty if necessary, inventing their own methods and solutions that fit their unique business and personal management style.  Private equity groups are not going to go dumpster diving to determine the previous day’s waste.  Larger companies with offsite ownership need systems and policies in place to measure and report KPI’s such as raw material usage analysis and production efficiency.  It’s not necessarily better or worse than the dumpster diving approach.  It’s just a good example of how a management process that works for a company at a particular stage of it’s development will not work as effectively as it grows and the ownership structure changes.

As an interim CFO for companies like this, I can help identify the necessary changes and implement them, before or after the change in ownership.  Please contact me directly if I can help your company or private equity group in this capacity.  For 7 tips on being successful as an interim CFO at private equity portfolio companies, click here.  And feel free to share any interesting management techniques you’ve come across and post them in the comments below or tweet them to me @middlemarketCFO with hashtag #ManagementByDumpsterDiving.

SEC Lifts the ban on general solitication. What does it all mean?

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It’s really just removing the first of two obstacles that stand in the way of crowdfunding.  The 2nd obstacle, which could get lifted later this year, would be to lift the accredited investor restriction.  At that point, private companies could raise equity by advertising to a wider audience through crowdfunding websites such as www.CircleUp.com and www.Fundable.com.  This will make it easier for small businesses to raise the capital needed to grow and stimulate the economy, but it could also open the door to fraud and high-risk investments.  What do you think will be the impact of crowdfunding?  

Eliminating Inefficiencies in Excel Spreadsheets

excel_university_logo_100I attended an IMA meeting this evening and the guest speaker was Jeff Lenning, President of Click Consulting and author of “Excel University: Microsoft Excel Training for CPA’s and Accounting Professionals”.

The theme of the presentation was basically “eliminating inefficiencies in recurring use spreadsheets”.  I build a lot of large spreadsheets with vlookups, pivot tables, charts, if statements, conditional formatting and other relatively advanced functions.  To be honest, I did not expect to learn much, but as is often the case, the more you know, the more you realize how much you don’t know.  I quickly learned several relatively simple tricks that I can apply more consistently throughout my recurring use spreadsheets to save a lot of time for myself and my clients.  I’ll summarize some of these below:

  • Stop using SUM where SUBTOTAL is more efficient.  The SUBTOTAL function excludes other subtotals within the range, so it eliminates the need to revise the ‘grand total’ formula when new rows or subtotals are inserted into the range.
  • Add a “skinny row” before formula rows.  A “skinny row” is a blank row with a relatively small row height.  Adding a skinny row eliminates the need to adjust the formula row or the formatting when inserting a new row at the bottom of the range.
  • Hide rows and columns using Data-Outline-Group feature rather than using the hide function.
  • Use the FILTER function in conjunction with the SUBTOTAL function to create methods for other users to sort and subtotal data that are a little simpler to use than pivot tables.  I like pivot tables, but they aren’t for everyone so this is a good alternative.
  • Use a “Start Here” worksheet for input areas and highlight input cells with the “input” cell style.
  • Use an “Error Check” worksheet to ensure integrity throughout multiple worksheets.
  • Use hyperlinks to ease navigation between source data and other worksheets.
  • Use keyboard functions (rather than right click or ribbon icons) for common features such as “F2” to edit a cell, “F4” to toggle through cell references, Arrow+Shift/CTRL to scoot around your worksheet more efficiently than with your mouse, and double-clicking the lower right corner of a formula cell to push the formula down as far as there are adjacent cells.

I have used many of the tips above, but the key is to use them more consistently.  If you have any additional Excel tips or tricks you like, please share them in the comment section below.

Can your business pivot?

streetballblogLike a basketball player who keeps one foot planted while spinning on it to explore different directions, companies pivot by staying grounded in what they’ve learned while shifting directions to explore a new customer base or providing different products or services to your existing customer base.  The pivot is a term coined by Eric Reis in his book The Lean Startup and it has gotten a lot of buzz in the startup and growth communities of late.  Nearly every successful company has pivoted on some level and there are many classic examples. Nintendo started selling playing cards before switching to electronic games. Tote was an online clothing catalog before it pivoted and became Pinterest.  So, how do you do it? For starters, make it a topic of discussion in management meetings on a regular basis.

  • Discuss your business environment – your supply chain, your competition, feedback from your customers.  Are there changes on the horizon that will be disruptive to your industry?  They could be opportunities.
  • Brainstorm for ideas on how your company could pivot to improve your position in the value chain, to get a leg up on the competition or better serve your customers.
  • Decide on a course of action and execute it.  Use what you have learned to this point and build on it.  Do not be anchored to things that do not work, but don’t “throw the baby out with the bathwater” either.  Make sure you allocate sufficient resources in terms of budget and training and marketing to implement the pivot successfully.

Being able to pivot is critical for middle market companies.  The good news is, it is easier to do at this stage while everyone is accustomed to constant change.  This makes it easier to pivot without leaving a divot!

Have you pivoted in your company?  Share your story in the comments below.

Photo courtesy of streetballblog.

Preventing Payment Fraud

fraud-alertMost middle market businesses have either been or will be the target of attempted payment fraud.  The good news is when you are following best practices to prevent payment fraud, it is fairly easy to detect and prevent the attempted fraud from being successful.  Best practices include the following:

1) Implement Positive Pay:  This is an early warning fraud detection system that helps you prevent fraud before it occurs.  It involves sending your bank an electronic file of payments made as you make them, which they can cross reference as checks are cashed.  The service is inexpensive and can be provided by your bank or your ERP system provider.

2) Daily bank reconciliations:  Some people think daily bank rec’s are overkill, but the truth is they prevent fraud, give you a clearer picture of your short term cash flow and they often actually save time.  Minor discrepancies can be difficult to identify when you are working with a whole week or month of data.   Reconciling daily makes it a simple task that can be easily performed by lower level accountants.

3) Use fewer paper checks and keep your check stock secured:  Most of the attempted payment fraud is the result of fraudsters getting their hands on your paper checks and either duplicating them or  using the information to make unauthorized ACH debits.  Converting regular payees to electronic ACH payments reduces the risk of fraud.

Following these 3 simple practices will greatly reduce the risk of fraud and give you some additional peace of mind.

The cost of not borrowing…

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Unused Line Fees or Commitment Fees

Everyone understands loans have an interest rate applied to the balance or the amount borrowed.  Not everyone understands business lines of credit generally come with ‘Commitment Fees’ or ‘Unused Line Fees’ applied on the amount of the line of credit not borrowed.  It is generally a relatively low rate compared to the interest rate, and it is basically the fee the bank charges to have the amount of the line of credit available for you to borrow if and when you need it, even though you are not currently using it.  Middle market CFO’s should understand the following 3 points:

(1) They may be negotiable.

(2) When comparing 2 or more loan offers, include the unused line fees in the analysis.  The difference may be substantial enough to tip the scales to one loan versus another.  If so, remember point #1.

(3) When determining the amount of the line of credit, include the unused line fees in the analysis.  While it may be best to have more credit available than you think you will need, understand the cost and factor it into your decision.

Although the reason the banks charge unused line fees is understandable and the cost is relatively small (especially compared to the amount of interest you might be paying on the portion of a term loan you don’t need), unused line fees are often a source of annoyance to many business owners and CFO’s who simply can not get used to the idea of paying the bank a fee on money they are not borrowing.  What types of fees and business expenses are the most annoying to you?