CFOs Face Uphill Battle With Unrealistic CEOs
October 22nd, 2008 by Thomas Mezger
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I learned something new last week: I always thought CEOs understood what a CFO’s role was. Well, not all of them do. For example, a couple months ago I contacted the founder of a new company in my area. I have great personal interest in what the company does, and I thought it would be a chance to do something fun. The local newspaper wrote a feature article about them and they were really starting to generate national attention. My first meeting with the founder and sales manager went very well and they expressed interest in my taking on the role of CFO.
I signed an NDA, then received their business plan and other legal documents. The plan showed where they wanted end up, but did not explain how they would get there. What little financial information was provided was very elementary and lacked supporting detail and credibility. I thought their production time-line was unrealistic, considering where they were in the development process. They readily admitted their plan needed help, but being focused on the product development phase, they had set it aside.
The devil is in the details. I next asked the tough questions, ones any investor would probe: Headcount ramp-up? Sales? Production and supply chain numbers? Capital schedules? Contingency plans? Scalability, etc? A healthy company would have responded along the lines of, ‘Let us explain, draw a roadmap. . .’ Instead, warning flares went up. One comment was, “We need team players, not someone who second guesses our executives all the time.” Bad idea! Think how investors respond to this kind of nonsense. They don’t! . . They leave. They know there’s nothing there. An executive team without a plan, who can’t attract and sell to the investment community, is doomed. The CFO, being the member of that team with the most to lose professionally, is point man, with his credibility on the line at all times. So investors inherently trust the CFO more than the SVP of marketing, or sales, or even the CEO. CFOs are hired guns for investors, objective and fair at all times, working above the noise. Any CEO who expects differently, or who shoots his own CFO in the foot, will be quickly dismissed by even the most tolerant investors. That kind of CEO isn’t going to make it.
Attracting investment is like fishing; Toss out a shiny lure and you may get some bites from small fish, but they won’t fill your frying pan. To land that big fish you need more. That is how the investment community is today. In the DotCom days, business plans were done on napkins at the corner coffee house. VCs were in a feeding frenzy and thought if they did not take the deal and run, no matter how badly planned, they would lose it. We all know those days are long gone.
A few months ago, I had a series of meetings with a small, private investment firm. They stopped investing in start-ups because of the high rate of failure and the time it took to get a reasonable return on their investment. Today, these firms focus on more mature businesses that run profitably. They don’t necessarily have to be high tech, bio tech or the like. They want to invest in good companies, coach them to increase in value and achieve an outstanding rate of return. So a business that has good financial controls, a plan, and working operational processes is better than one that is in disarray, one that will need a lot of attention.
The current situation on Wall Street makes things more challenging. Many investors have pulled out of the market and are waiting for things to calm down. The mortgage crisis has been festering for a while and many were surprised that the government jumped in with a huge bail-out program. The rapid rise in the cost of energy means we can no longer delay the adoption of aggressive energy conservation policies or more efficient transportation systems. General Motors, Ford, and Chrysler were the cornerstones of the U.S. economy for many years, but they are in trouble. For them to survive, they need to quickly re-engineer themselves. This will affect many suppliers and related businesses in a matter of months, and makes it all the more critical to have well rounded, cost effective business processes. Everyone will be looking for capital. How will you differentiate yourself to investors?
So the point is clear.the executive team must keep their eyes on the ball, manage the whole business, in order to successfully grow and reach the next level. This is nothing new. This is where the people at Thomas Financial Services (www.thomasfinancialsvcs.com) can help. They have the experience and knowledge to analyze, create and roll out the roadmap for a stronger and more efficient company through the development of internal processes such as finance, accounting, planning, forecasting, internal controls, project management, and the whole customer experience.
Little companies can succeed. Big companies fail every day. Failure to anticipate and plan kills your future. Recent blowups like Lehman and AIG drive home the point that when even the big boys take their eye off the ball, they strike out too. Chief Financial Officers turn organizational discipline into credibility with investors. Make sure your executive team is truly a team. Stay on top of your game. Plan your work, work your plan.
