Category Archives: Forecasting and Budgeting

Be Fully Aware of Every Detail of Your Funding Agreements

I previously wrote about the importance of getting agreements in writing. From personal experiences and observations I have seen great detriments in relying on vague verbal assurances. Among other things, reducing an agreement to writing ensures commitment and helps clarify important details between the parties to the agreement.

Written financing agreements are particularly important because the financial function is a key enabler of business strategy and operations. When the organization’s existence is riding on the line, a controller or CFO cannot rely upon flimsy verbal promises from potential lenders or investors. Senior financial leaders must take charge in clarifying the exact nature and requirements of the funding agreements.

A recent article details the importance of looking for quirks in financing agreements. Here are some takeaways:

  • Be prepared for stringent documentation requirements and financial covenants, especially if your business is a first-time borrower or has a checkered credit history.
  • Don’t assume that the math will be straightforward in calculating credit limits for asset-based borrowing. For example, lenders might discount certain categories of receivables such that the company is unable to borrow against them.
  • Banks can use their own judgment and criteria, seemingly without a tight quantitative basis, for excluding certain assets from the collateral base. This effectively reduces the amount of credit available for the borrower. Factor this in when making decisions about managing working capital and short-term cash flow.
  • Have an eagle eye for fees. Don’t base your borrowing decisions exclusively on the quoted interest rate while ignoring hidden expenses that drive the effective borrowing costs higher.
  • Be aware of initially odd requirements such as segregating inventory used as collateral from other inventory in a separate warehouse. Rather than having to worry about a padlocked warehouse and drawn-out, expensive litigation, banks want easy access to the security in case the borrower goes bankrupt. This places added complexity, requirements, and (likely) expenses on the borrower.

Communicate effectively to make sure all relevant details are negotiated and finalized in the lending agreement. Both the borrower and the lender need to be clear on making sure their economic interests are served by the agreement. Both sides have to exercise due diligence to ensure that they are getting a workable deal.

Poetry and Art for the CFO: Twelve Elements

Are you left or right brained? Analytical or emotional? A number cruncher or a poet?

Although it might run counter to our initial assumptions, CFOs are expected to go “beyond the numbers” and manage key aspects of the business as a whole. We have seen the importance of understanding technology and operations, among other factors not directly related to number crunching.

Very critical is the CFO’s role in dealing effectively with people and relationships. A CFO needs to be approachable. To become CFO material, a finance professional needs to develop habits of ambiguity tolerance, composure, empathy, energy, humility, and confidence.

On that note, the international accounting and finance firm Deloitte has published a poetic and artistic description of the CFO’s twelve elements, which encapsulates the expansive requirements and responsibilities of the CFO’s job:

“As CFOs grow in stature and importance, they keep coming back to the same issues that form their agenda. The elements of the CFO Agenda represent a powerful framework for one of the toughest jobs on earth. Year after year, quarter after quarter, they endure.”

Here are the twelve elements and my summation of the messages:

  • Truth – Be real. Know the true story and tell it.
  • Growth – Plant and water. Make choices and commitments to move plans forward.
  • Relationships – Work together. Manage relationships up and down, inside and out.
  • Decisions – Root your insights in numbers. Don’t manage solely based on your gut.
  • Capital – Manage business investments. Determine timing, amounts, and allocations.
  • Disruption – Be discerning as technologies, industries, and markets constantly change.
  • Crisis – Manage risks. Be ready to respond to various sorts of threats.
  • Infrastructure – Be an enabler. Invest in tech, talent, systems, and solutions.
  • Transactions – Research deals with the right criteria, calmly, thoroughly, and rationally.
  • Transitions – Change is constant. Build your skills and reputation in the midst of it.
  • The Street – Have give and take on forecasts. Be vigilant to represent the company well.
  • Me – Provide solutions. Navigate through complexity to make things happen.

Don’t take my word for it. Take a look at the presentation for yourself. Reflect on the messages. Do you agree or disagree with each of the elements and how they’re presented? How can you apply these insights in your work as you develop your career?

The Future of Your Work

TIME ran a series of ten features regarding the future of work. In formulating a career development plan it is imperative to begin visualizing how work life might look in the future in light of rapid global changes. Here are a few summarized conclusions from TIME‘s articles:

  • We will see a more flexible, more freelance, more collaborative and far less secure work world. It will be run by a generation with new values — and women will increasingly be at the controls.”
  • Not surprisingly, one of the best sectors into the future will continue to be technology. Entrepreneurs will set the tone for which specific areas thrive and dominate within the broader tech landscape.
  • Debate rages about the role of business schools in inculcating managerial ethics. One way or another, the importance of business ethics – and the consequences for diverging from paths of integrity – will not wane into the future.
  • As a cost-savings measure, companies will increasingly expect employees to contribute more toward paying for their benefits. Many companies started their benefit plans when the ratio of young workers to retirees was much higher. Now that the ratio is reversing, companies have to adjust accordingly and trim back benefits expenditures for employees and retirees alike.
  • Rather than the old traditional “up or out” model of career advancement, some companies are adopting a “lattice” model. Employees can “dial up” or “dial down” to different roles and enjoy more flexibility. Implementing telecommuting and other forms of flexible work arrangements can even be financially compelling for companies.
  • Baby Boomers will have to keep working longer than anticipated rather than retiring due to not having enough retirement savings. This can have both positive and negative effects for the economy.
  • Women will continue to extend their influence in the workplace. Women have a distinct style focused on collaboration, managing risk cautiously, and looking into the future, as compared to their male counterparts who thrive on risk. With more women comes more emphasis on work-life balance and flexibility. Furthermore, “When a company gives employees freedom, it doesn’t just feel good or get shiny, happy workers — productivity goes up.”
  • Green jobs geared toward various environmental objectives will likely continue to gain traction.
  • Generation X management styles will increasingly emerge. Gen X will have to manage Gen Y. “Companies already want more short-term independent contractors and consultants and fewer traditional employees because contractors are cheaper. And seniority matters less and less as time goes on, because it’s about the past, not the future.” Collaboration among workers from various backgrounds who are spread all over the world will become increasingly common. Cross-cultural communication and motivation strategies will become paramount career skills to develop.
  • Manufacturing productivity continues to vastly increase, coupled with less domestic demand for manufacturing workers. “Highly skilled workers creating high-value products in high-stakes industries — that’s the sweet spot for manufacturing workers in coming years. … Ultimately, what’s endangered is not U.S. manufacturing. It is our deeply ingrained cultural image of the factory and its workers.
  • In order to understand what your workplace is going to be like in five or 10 years, you need to think about what your work is going to be like. Here’s a clue: employers no longer need to pay you to drive to a building to sit and type. In fact, under pressure from an uncertain economy, bosses are discovering that there are a lot of reasons not to pay you to drive to a central location or even to pay you at all. And when work gets auctioned off to the lowest bidder, your job gets a lot more stressful. … So, are you essential? Most of the best jobs will be for people who manage customers, who organize fans, who do digital community management. … Some people will embrace this new high-stress, high-speed, high-flexibility way of work. We’ll go from a few days alone at home, maintaining the status quo, to urgent team sessions, sometimes in person, often online. … Work will mean managing a tribe, creating a movement and operating in teams to change the world. Anything less is going to be outsourced to someone a lot cheaper and a lot less privileged than you or me.”

What other trends for work and careers can we expect in coming years and decades? How should we respond? This is a significant theme I plan to explore in many future installments. Whether we like trends of rapid change, reality is reality. We can either complain about emerging patterns, or we can learn to work them to our advantage. The choice is ours. Let the planning and action begin.

Planning for Change: Be Flexible and Responsive

Though it’s almost a cliche by now, the statement is true: Change is constant and rapid. The environment of constant change requires business managers to be flexible, attentive, and responsive. A recent CFO Magazine article, New Strategies Around Strategy, provides some insights that I summarize below:

  • Have a long-term plan to set forth the direction for your products, markets, and strategy.
  • Be flexible and nimble; based on changing factors in the marketplace, test the assumptions that went into your planning.
  • Have contingency plans in place so that you will be ready to quickly respond to changes in the marketplace.
  • Recognize that change is the “new normal,” and embrace the environment by taking calculated risks.
  • Information is vital for planning, especially historical insights about how businesses responded in challenging circumstances.
  • Write your long-term plan in pencil, not in ink. Keep an eraser handy.

Read the entire article for more details about flexibly budgeting and strategically planning.

Whitepaper: Do I Need a CFO or a Controller?

What are the differences between the roles of the CFO and Controller? How does an organization determine whether to utilize the functions of a Controller or CFO (or both)? A white paper by The Brenner Group provides this summary: “The CFO and the Controller play very important, yet different roles within growing companies. The CFO typically serves as a strategic partner for the CEO and the Controller is more focused on day-to-day tactical accounting matters.”

The white paper gives the following descriptions for the role of the Controller:

  • Implement and/or create fundamental accounting policies and procedures
  • Manage day-to-day accounting and cash flow maintenance (including payroll processing, accounts receivable and collections, and accounts payable distributions)
  • Implement accounting software and establish chart of accounts
  • Update financial models and analyze budget to actual activity
  • Prepare financial management reports in a timely manner for use by the management team and the Board to run the business
  • Handle basic Human Resource tasks such as maintaining employee files, generating offer letters, researching benefit questions, processing 401K activities, etc.
  • Help recruit, build and manage the accounting and finance department
  • Manage annual audit preparation and process
  • Act as the historian with respect to accounting matters

On the other hand, the CFO’s role is distinct from that of the Controller:

  • Be intimately involved with the CEO and Board on strategic planning matters, effectively serving as the “right hand” to the CEO
  • Assure adequate capital or growth by assisting with financings, including preparation and presentation for Angel or Venture Investors
  • Manage cash flow and provide timely communications regarding the future cash projections and needs
  • Function as the “Vice President of all other”—i.e. any function not directly involved in designing, manufacturing, selling or supporting the product
  • Direct or implement accounting systems, policies and procedures
  • Facilitate the development of annual strategic operating plans
  • Create and implement forecasting tools to measure the business
  • Administer stock option issuance and tracking
  • Manage the human resources function, including obtaining and administering employee benefits
  • In cooperation with the CEO and the Board, locate and negotiate facilities and fixed asset acquisitions
  • Initiate and retain outside relationships with independent accounting, tax and legal advisors
  • Work with the sales department to establish pricing policies
  • Hire and staff the finance and accounting department
  • Oversee risk management, including adequate insurance coverage

Read the complete whitepaper: Do I Need a CFO or a Controller?

Categories for My Website

This is my CFO Career Development Plan website. I will post my career plan and chart my progress, and this site will be a tool in the process. For example, part of my career plan will involve reading books, and I can review them on this site to give valuable input for others from my learning.

Here are some of the categories I plan to cover on this site as I develop my career as a financial professional:

  • Risk Management
  • Tax and Regulatory Compliance
  • Human Resource Management and Supervision
  • Policy Making
  • Decision Making and Analysis
  • Forecasting and Budgeting
  • Professional Development
  • Strategy and “Big Picture” Focus
  • Investor and Lender Relations
  • Information Technology Tools
  • And More …