CFO Techniques. A Hands-On Guide to Keeping Your Business Solvent and Successful. Marina Guzik

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1 CFO Techniques A Hands-On Guide to Keeping Your Business Solvent and Successful Marina Guzik

2 CFO Techniques: A Hands-On Guide to Keeping Your Business Solvent and Successful Copyright 2011 by Marina Guzik All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without the prior written permission of the copyright owner and the publisher. ISBN-13 (pbk): ISBN-13 (electronic): Trademarked names, logos, and images may appear in this book. Rather than use a trademark symbol with every occurrence of a trademarked name, logo, or image we use the names, logos, and images only in an editorial fashion and to the benefit of the trademark owner, with no intention of infringement of the trademark. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. President and Publisher: Paul Manning Lead Editor: Jeff Olson Editorial Board: Steve Anglin, Mark Beckner, Ewan Buckingham, Gary Cornell, Morgan Ertel, Jonathan Gennick, Jonathan Hassell, Robert Hutchinson, Michelle Lowman, James Markham, Matthew Moodie, Jeff Olson, Jeffrey Pepper, Douglas Pundick, Ben Renow-Clarke, Dominic Shakeshaft, Gwenan Spearing, Matt Wade, Tom Welsh Coordinating Editor: Adam Heath Copy Editor: Damon Larson Compositor: Mary Sudul Indexer: SPi Global Cover Designer: Anna Ishchenko Distributed to the book trade worldwide by Springer Science+Business Media, LLC., 233 Spring Street, 6th Floor, New York, NY Phone SPRINGER, fax (201) , orders-ny@springer-sbm.com, or visit For information on translations, please rights@apress.com, or visit Apress and friends of ED books may be purchased in bulk for academic, corporate, or promotional use. ebook versions and licenses are also available for most titles. For more information, reference our Special Bulk Sales ebook Licensing web page at The information in this book is distributed on an as is basis, without warranty. Although every precaution has been taken in the preparation of this work, neither the author(s) nor Apress shall have any liability to any person or entity with respect to any loss or damage caused or alleged to be caused directly or indirectly by the information contained in this work.

3 To Yana, the only person I ever wanted to impress.

4 Contents About the Author...vii About the Technical Reviewer...viii Acknowledgments... ix Introduction... xi Part 1: Scouting Your Surroundings and Defining Your Mission... 1 Chapter 1: What Is Special About Smaller Businesses?... 3 Chapter 2: Titles vs. Job Descriptions... 9 Chapter 3: The CFO s Mission and Aspirations...15 Chapter 4: Eight Balls You Must Keep in the Air...21 Chapter 5: The Essential Knowledge Prerequisites...27 Part 1I: Enforcing the Law: Policies, Procedures, and Controls...33 Chapter 6: System of Internal Control and Company Policies...35 Chapter 7: Generally Accepted Fiscal Policies...43 Chapter 8: Procedures for Quintessential Tasks...53 Chapter 9: The Weakest Link...65 Chapter 10: Budgeting as a Control Mechanism...77 Chapter 11: Controlling Commerce...85 Part 1II: Deep Pockets: Your Capital Resources...93 Chapter 12: Options for Capital Financing...95 Chapter 13: Business Nature vs. Financial Resources Chapter 14: Soliciting Investors and Lenders Chapter 15: Nurturing Financial Relationships Part 1V: Cash Must Flow: Treasury Management Chapter 16: The Gist of the Treasury Function v

5 Chapter 17: Cash Flow Projections Chapter 18: Daily Cash Position Chapter 19: Managing Receivables and Payables Chapter 20: Treasury Management Services Part V: Data Mining: Information Management, Analysis, and Reporting Chapter 21: Information Technology Decisions Chapter 22: Ode to Excel Chapter 23: Executive Reports and Performance Analytics Chapter 24: The Importance of Segmental Analysis Chapter 25: Ad Hoc Reporting Part V1: Accounting by the Book Chapter 26: Clean Books and Compliant Statements Chapter 27: Accounting Cycles and the Structure of Financial Statements Chapter 28: The Most Important Statement: Cash Flow Chapter 29: Choose Your Auditors Wisely Chapter 30: What Guarantees Fast and Painless Audits Part VII: Risk Management Chapter 31: Insurable Risks Chapter 32: Commercial Risks Chapter 33: Tax and Regulations Compliance Part VIII: Ensuring Your Going Concern: Strategies, Plans, and Forecasts Chapter 34: Principles of Strategic Planning Chapter 35: Practical Modeling and Forecasting Chapter 36: New Ventures Chapter 37: Exit Strategies Part IX: Administration: The Organization of People Chapter 38: Acquisition of Human Resources Chapter 39: Managing Human Resources Chapter 40: The Behavioral Approach Index vi

6 About the Author Marina Guzik s career in finance and accounting spans 24 years, with the last 17 years in chief financial officer and controller positions in small and midsize companies. She has worked in both the public and private sectors, including manufacturing, global supply chain, e-commerce, professional services, asset management, and consulting. Marina s functional expertise spans a broad range of tasks and duties, from international treasury to mergers and acquisitions, and everything in between. She holds several academic degrees, including a master s in business administration in accounting. She believes in the strength of fundamental knowledge and commercial acumen, which can be intelligently applied to any particular business model.

7 About the Technical Reviewer Randy Krug is a CFO with over 25 years of finance and accounting experience in a diverse field of industries, including public accounting. His career features a 15-year stint with the world s largest brewer, and he has actively engaged national board participation in technology and e-commerce strategy planning with all of America s best-known brands. Randy enjoys peer networking as evidenced by over two decades of participation in a local financial executive network for continuing education, and he founded the national Anheuser-Busch Controller s Roundtable for the purpose of bestpractice professional development. A product of Iowa s agricultural heritage, he and his wife Sheila live near Cedar Rapids and are the proud parents of two adult sons. viii

8 Acknowledgments I want to express my deepest gratitude to Jeff Olson, who found my blog, The Frustrated CFO, and saw the potential to share my expertise with fellow financial professionals working in small and midsize companies. Thank you, Jeff, for your unyielding confidence and support. I also want to thank everyone at Apress who worked on the book and helped to bring it to the readers. Special thanks to Yana Zosya and Hannah Max for being in my life. ix

9 Introduction What It Takes to Succeed as a CFO, or How Long Is Your Hat Rack? In the past ten years, quite a few business books and articles have come out with demands for CFOs and controllers to reinvent themselves. The authors implore us to stop being bean counters and refashion ourselves as strategists and tacticians. We hear the same call for dramatic changes from speakers during conferences and professional gatherings. It resonates deeply among us. Oh, how we long to rise above our daily routines and into the realm of meetings with agendas full of abstract conceptualizations. Well, that is all the time we have for dreams. Let s get back to Earth, roll up our sleeves, and attend to the reality. This book is not for Fortune 500 CFOs with hundreds of subordinates to whom ordinary tasks and even implementation of new ideas can be delegated. This book is for those professionals in financial management CFOs, controllers, treasurers, VPs, and directors of finance who, like me, toil to ensure the commercial survival of small and midsize businesses. I don t mean to say that strategy and tactics are not on our lists of priorities. Neither do I imply that our scope of responsibilities has not changed in the last decade. As a matter of fact, I believe that CFOs and controllers in smaller businesses have experienced a more significant transformation of their roles than those in large companies. As the business climate changes, small and midsize companies struggle harder than ever for survival. That imposes even more demands on our positions. Yet the reality of our work environment does not allow us to drop any old tasks from our scrolls of duties. Instead, we take on more functions and expand our span of command. Thus, it is not the reinvention of the job, but the functional diversification that assures the successful performance of a hands-on financial leader. This broad functionality is the central theme and the subject of this book. Whether you have just been promoted and it is your first time at the top of the corporate accounting and finance department, or you have worn these shoes before and xi

10 have years of executive experience, you will find the streamlined concepts helpful. This is not an academic text, nor is it a compilation of theoretical information from popular resources. The material is based on practical knowledge and hands-on experience. It will provide you with comprehensive guidelines regarding the most important functions under your control the areas of expertise where you must excel and achieve your best. Smaller enterprises commonly have to deal with limited resources, and that translates into slimmer organizational structures and smaller teams. In this environment, the hands-on approach becomes mandatory. CFOs and controllers must know all the functions intimately and cannot avoid tending to some tasks firsthand. Business owners and chief executives frequent agents of change in their companies will find this book useful as well. It can help to formulate expectations for senior financial managers, who are entrusted with the most expensive resource: money. A person who has achieved a top financial position in a business organization must possess expert knowledge in a variety of technical disciplines related to finance and accounting. Moreover, your books still need to be in order, you cannot escape dealing with banks, and your formal financial statements still have readers. However, all that is not enough anymore. To succeed as a CFO or a controller, one must possess sharp commercial acumen, understand all aspects of corporate management, and, yes, be a strategic thinker. A person in such position will wear many hats, handling duties that recently were not in the job description. Whether you installed a hat rack by your door or store your hatboxes under your desk, one thing is guaranteed: your list of duties requires you to wear many hats and to change them quickly as your workday progresses. You may have started the day at your desk in your business suit, but here you are in a policeman s cap enforcing civility in human relations; and there you are in a Napoleonic bicorn developing global expansion strategies; next in a deerstalker using your forensic skills in search of a lost container; now in a geeky, propeller beanie discussing upgrade requirements with your IT staff; then in a barrister s wig reading a legal brief; and so on. The smaller the company, the larger the hat collection. We must embrace this functional diversification. It is a natural result of a financial manager s evolution. Here s why: xii Human resources are related to payroll, which is not only a monetary concern, but also frequently the largest budgetary constraint.

11 Accounting modules usually make up the largest portion of an IT system. Hence we have vested interests in their adequate development. Business strategies are fueled by cash flow, investments, and lending. You are indispensable to the executive strategists. Our performance analysis provides indicators as to whether the business has an ability to expand, or must contract immediately. Dynamic development is the key to commercial survival in today s complex markets. As members of executive teams, we must facilitate forward progression while installing proper provisions to cover all associated risks. All banking, customer, vendor, investment, financing, leasing, and even employment relationships are entangled in contracts, which we need to fully understand for compliance and proper procedural implementation. An ability to cut through legalese into the essence of these documents requires sufficient familiarity with both the form and substance of such instruments. In businesses where products have dollar signs in front of them (such as asset management or financial services), operational management becomes one of the financial responsibilities as well. Only large enterprises can afford to have VPs for every separate group of functions. In smaller companies, functional concentration of any position is much higher, especially that of a head of finance. They say small business is the backbone of the economy. Well, if that s true, then we are the spinal cord inside those vertebrae. We carry our load and support our employers by attending to the multitude of these functions, wearing different hats and juggling 30 balls at a time. Personally, I would not have it any other way. This is how we make our impact. This is what defines us as professionals. xiii

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