This interview with John Y. Lafferty of CFO-Pro explores some of the most beneficial services he offers his clients. John is one of the most experienced Interim CFOs in the country. We’re going to be talking about CFOs and start-up businesses in general and how you get involved in starting up a company properly with proper financial support.
Interviewer: Today we’re going to be talking about this whole idea of outsourcing a CFO. First of all, give us a little background about your business. First of all, how did you get into this business, and did you always want to be a CFO?
John: I started my career in public accounting with Arthur Andersen. I had no idea that I would eventually be a CFO type, but after a number of years there, I went into venture capital, which at the time was the largest institution VC firm in the country. After several years there, I decided to peel off in the industry and be the financial guy and was in a number of privately-held enterprises. I also had the opportunity to run some businesses during that time. Eventually, it became pretty clear to me that the hours I was putting in on a salaried basis were just too much, so I thought ‘why don’t I go out on my own, do what I do, what I knew how to do best and provide financial management services to business owners.’ That’s what I’ve done.
Interviewer: It’s interesting because a lot of companies go out and they’ll hire a mediocre CFO and they’ll pay them full time and they really don’t need that; they need somebody focused on the most important things. Maybe you can give our audience a few tips on what’s there to be appreciated when it comes to high-quality CFO services and how can a fractional CFO person like yourself really get a company properly on track?
John: I’m going in and focusing on what is bothering that business owner; what does he feel his key issues are on the financial side of the business. One of the things that they don’t pay any attention to is break-even sales. They don’t know ‘at what point do I have even sales to cover all of my expenses.’ Beyond that, that becomes profits. They don’t understand the formula nor how to calculate it. That’s something I can help them with within a matter of minutes because when I look at their P&L statement, I can quickly see that there may be some line items that are misclassified. They’re going to need to be above what they call the line or below the line; that’s the gross profit line. Once they’ve understood that, then I say let’s assume you wanted to spend $10,000 on a marketing initiative, the same formula is going to answer the question ‘how much in sales do I have to generate to cover that cost.’
I also look at how many days of sales are in accounts receivable and also in accounts payable. The larger that gap is, the tighter their cash flow is. If they’re collecting receivables in 70 days and paying vendors in 30, that’s a wide gap and so I encourage them to chase those receivables, get that down to 45 days, stretch your vendors a little bit, maybe up to 40 days. There’s one other item that I point out and the way I approach it is let’s assume you can improve your margin by 1% and if you got $10 million in annual sales, that 1% is worth $100,000. If you improve that margin by 1%, that’s $100,000 to your bottom line. Maybe you don’t need it in the business or you take it out and invest it elsewhere. That’s a key thing to begin to understand in terms of watching your margins, managing them, and knowing what it really means to do them.
Want to know more about CFO Services? Give John a call at (630) 269-7646.
The answers you need before hiring an interim CFO
If you’ve thought about using virtual CFO services, I recommend doing due diligence on your candidate and asking the following questions. The qualified interim CFO you choose should be able to respond positively to 90% of the qualifications listed below.
- Does the virtual CFO have hands-on experience in working with a company of your size and is he or she accustomed to the type of company culture you provide?
- Does the virtual CFO have experience in your specific industry? If not, does he or she have the breadth and equivalence of experience necessary to serve your company?
- Does the virtual CFO have experience in defining and implementing key productivity and financial indicators, and the requisite skills to track the indicators to keep the CEO informed?
- Does the virtual CFO have experience in delivering clean, lean Executive Summary financial information, with commentary regarding tracking and trends, so that the CEO can easily understand where his company stands and what the numbers mean to make informed decisions?
- Is the virtual CFO candidate willing to discuss the two or three most challenging situations he or she has worked on and how those challenges were resolved on behalf of their clients?
- Does the virtual CFO have experience in working with bankers, lawyers, outside accountants and other professional service providers on behalf of the company he serves? If so, what did that experience entail – i.e. experience in mergers and acquisitions?
- Has the interim CFO worked side-by-side in the trenches with CEOs and done the job he was needed to do? Does he have proof of the CEO’s satisfaction through a series of outstanding references given across time and industry?
- Does your interim CFO feel that timely and accurate record keeping is equally as important as forward-looking financial strategies and planning – or does he or she give more emphasis to one over the other? The answer should indicate balance, and not weighting one over the other.
- Does the interim CFO have experience in resolving bottlenecks in company productivity and financial management issues?
- Will the interim CFO candidate readily discuss your situation before coming on-board so you have a clear understanding that he or she has a clear understanding of your challenges?
- Does the interim CFO have repeat clients and long-term professional relationships?
These are some of the main qualifications you should look for when hiring virtual CFO services.
What Your Accounting Dept. Can’t Tell You
When your company changes, your internal financial management has to keep pace. Red flags in the accounting department may be signaling a skills gap or they could be indicating a lagging, bloated or overwhelmed financial reporting and tracking system. The expertise to make specific fixes may be outside the wheelhouse of your in-house financial talent. Here are a few ways to know when you need virtual CFO services and why it’s so imperative.
- Financial Reporting is Not Timely or Accurate – If you are reviewing the numbers one month or more in arrears, your accounting department is lagging, and under such duress, the financial reporting system itself may be faltering. Falling behind on the numbers not only impacts management’s decision-making but adds undue stress and productivity drain, impeding strategic development. A CEO needs timely and accurate information to make timely and accurate decisions.
- Your Company Needs Experience in Working with Bankers, Lawyers and CPA Firms – Few things are more expensive than inexperience. You don’t know what you don’t know. Navigating the complexities of business and plethora of professional services requires a deep knowledge of the systems and scenarios that are unfolding in and around your company. A skilled CFO is an advocate, analyst and advisor who anticipates and translates the best course of action with your banker, lawyers, accountants and other professional service providers.
- Your Banker Urges You To Strengthen Internal Financial Talent – If, as a CEO you find yourself complaining to your banker that your accounting department is not delivering, a banker invested in your success will urge you to make some internal changes. He may recommend a stronger accountant, but many accountants don’t have the necessary skills. An interim CFO or in-house CFO may be the precise solution for streamlining and improving the accounting department.
- You Company is Undershooting Its Potential – When financial reporting is bloated or faulty it requires enormous time and energy from the CEO to review and interpret the numbers. This diverts his or her focus away from growing sales, which is where the energy is needed. A good interim CFO frees the CEO from minutia to focus on creating company growth.
- Your Growth is Internal and Your Accounting Department Can’t Keep Up – Often a financial reporting system needs a tweak instead of an overhaul. A good interim CFO knows where to streamline the financial management process to keep the accounting department on track.
- Your company is poised to acquire another company but you don’t have anyone with the requisite background to perform the due diligence. In this scenario knowledge is power, experience is paramount and the success of the acquisition hinges on specific expertise. Acquisitions are both an art and a science founded on the ability to know, use and analyze the numbers.
- You have a great opportunity to grow the business, but your team lacks the capabilities to manage the numbers. Driving profitability and growth requires swift and accurate financial management. The current team may be unable to define and put in place key productivity ratios and financial ratios, and accurately track and report on the trending, leaving the CEO without a clear view of what is required to navigate the company’s future.
- A Sounding Board and Strategic Partner- As a CEO it is lonely at the top. Leaders face serious responsibilities when pursuing their company’s next steps. Having a sounding board and strategic partner is not only advantageous, it is optimal. According to Nicholas A. Christakis, MD, PhD and James H. Fowler, PhD, authors of Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives, “Innovation rarely arises without the input of others. Breakthroughs are created in collaborative circles.” A skilled CFO can bring a fresh perspective to the table and strategize with you and your key managers on how to drive the business forward.
If your company is experiencing any of these scenarios, I welcome the opportunity to discuss them with you. Please feel free to call me at: 630-269-7646 or email me at email@example.com