THE ROLE OF THE CONTRACT CFO

IN THE MIDDLE MARKET FIRM

Tom ComolloPartner, B2BCFO®

THE ROLE OF THE CONTRACT CFO IN THE MIDDLE MARKET FIRM

• Presenter credibility

• Every Company, regardless of its size, needs a CFO

• CFO alternatives

• The role of the CEO / Owner

• Cash management

• Financial management

• Profitability

• Exit Planning

• Does the Company need a Contract CFO

• Thought for the Day

• Questions2

• Started in 1987

• National CFO firm: 102 partners, over 2,300 years experience

• Our Publications– The Danger Zone, Lost in the Growth Transition– Avoiding the Danger Zone, Business Illusions– Finding The Exit™

• Intranet– Latest US Master GAAP Guide– Latest US Master Tax Guide– CCH Accounting Research Manager®

• Intranet Forum: 102 Partners in 42 states

• www.b2bcfo.com

Qualifications of B2B CFO®

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• B2B CFO® is a nationwide CFO firm

• We serve emerging and mid-market companies

• We help clients increase profitability and cash

• Cash is our primary focus with our clients

• In fact, our slogan is: Cash. We Help You Get It.™

• All the services are delivered by partners

• Our relationships are on a hand-shake basis

• Each partner is supported by over 2,300 years of combined experience

• Our services are provided on an affordable as-needed basis 4

• 30 years experience

• MBA – Seton Hall University

• BS, Accounting – Villanova University• CPA

• Proud to be a partner in the nation’s largest CFO firm serving mid-market companies

• See bio at www.b2bcfo.com

Qualifications of Glen J. Katlein

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Structured and coordinated the due diligence program and assisted in arranging financing for a successful investor management buyout of the company

• Directed and controlled the management and reporting of three newly acquire operations in a new line of business

• Directed the automation of accounting, order entry and manufacturing systems at eight different operating and headquarters including the acquisition of software and hardware

• Started a company with no capital investment and only a factoring arrangement for accounts receivable. Subsequently arranged for a $120,000 line of credit and a $200,000 term note

• Reviewed several acquisition candidates and completed the acquisition of a $20 million company

• Established measurements and reporting guidelines that gave senior management a quick and accurate look at results compared to projections

• Highly regarded as a business partner who is sensitive to the business and maintains integrity in the numbers

My personal track record includes

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• Financial and goal clarity

• Increased profit and cash

• Trusted, long-term business advisor

• Successful exit strategies

EVERY COMPANY, REGARDLESS OF ITS SIZE, NEEDS A CHIEF FINANCIAL OFFICER

THE RIGHT BUSINESS PARTNER THE RIGHT FINANCIAL ADVISOR

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• Long term full time CFO employee

• Interim full time Contract CFO

• Interim part-time Contract CFO with contract staff

• Long term part-time Contract CFO– National Firm– Local Firm– Local Independent

EVERY COMPANY, REGARDLESS OF ITS SIZE, NEEDS A CHIEF FINANCIAL OFFICER

Is A Contract CFO - THE RIGHT BUSINESS PARTNER THE RIGHT FINANCIAL ADVISOR

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“Unofficial Organization Chart”

•Finders – future thinkers

•Minders – historical view

•Grinders – live for today

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“Finder”

• Entrepreneurs are Finders

– Live in the future; pull others into the future

– High ethical and moral business core values

– Creative, visionary, innovator, dreamer

– Relationship builder10

Cash ManagementInfrastructure Creation

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Infrastructure Creation

• Numerous factors– Employees

– Vendors

– Computer hardware and software

– Outside contractors

– Bankers

– Lenders or leasing companies

– Outside accountants and attorneys

– Operating procedures and processes

– Machinery and equipment

– Office space or buildings12

Cash ManagementInfrastructure Peak

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Infrastructure Peak

• Business Growth drives Infrastructure Peak

– Company runs “lean and mean”

– High level of customer service

– Short cash collection cycles

– Few customer complaints

– Low overhead

– Personal sacrifice by the Finder

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CEO / Owner’s ActivitiesInfrastructure Peak

• Building relationships with customers

• Creating relationships with vendors

• Delegating tasks to employees or associates

• Causing sales and cash to come into the company

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Cash Management Out-Growth of Infrastructure

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Cash ManagementOut-Growth of Infrastructure

• A result of running lean is burn-out of owner and employees

• Attitudes change, owner thinks:– “I should have a raise”– “We need more people so we can take time off”– “We need a better building”– “I need a new car/house/vacation……”– “We should buy more equipment or inventory”

• A shift in perspective– Less attention to customer needs– Less emphasis on running “lean and mean”

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Cash Management Out-Growth of Infrastructure

• Symptoms (Consequences)

– Customers – complaints increase, orders decrease, problems increase

– Productivity – quality decreases, inaccurate information, more meetings, equipment downtime

– Employees – higher turnover, increased theft of time, money and inventory, increased cost of benefits and training

– Cash – receivables increases, cash shortages, increased dead inventory, debt incurred to cover overhead

– Vendors – delay deliveries, relationships decline, time is spent finding new vendors

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Cash ManagementThe Danger Zone

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Cash ManagementThe Danger Zone

• The Danger Zone

– The Danger Zone is created when the cash needs of your company far exceed the cash available to meet those needs

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Cash ManagementThe Danger Zone

• Activities in The Danger Zone

– Analyzing cash flow

– Meeting with bankers and lenders, attorneys and accountants

– Deciding which bills can be paid

– Hiring or firing staff

– Writing checks

– Purchasing computers

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Cash ManagementThe Danger Zone

• What is the CEO / Owner doing?

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Cash ManagementThe Danger Zone

• Risks

– Loss of current and future customers

– Damaged business relationships

– Lost enthusiasm or energy of the Finder

– Damaged relationships with family members

– Death of the dream of the founder

– Death of the company

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Cash ManagementEscaping The Danger Zone

• CEO / Owner focus - Find sales with good margins

• Leave Minding activities to others – Contract CFO

• Sales or cash? – let Contract CFO find the cash so finders can generate sales

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Financial Management The Key to Avoiding the Danger Zone

• More businesses fail due to cash problems than fail due to business problems

• Sound financial management equals control of the business

• Allows CEO / Owner to be proactive rather than reactive

• Cash management is a process not just an event

• You can’t manage what you don’t measure

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Cash. We Help You Get It.™

• Banking & Lending Relationships

• Profit Improvement

• Financial & Strategic Planning

• Cash Flow Projections

• Working Capital Improvement

• Gross Profit Optimization

• Expense Reduction

• Timely & Accurate Financial Statements

• Increased Sales

• Exit Strategies

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Financial Management

• Strategic and financial plans– One year monthly business plan– Two year to five year annual and monthly forecast– Forecast both Income Statement and Balance Sheet– Update monthly or quarterly– Communicate to all key parties– Tie bonuses to the results

• Cash management– 13-week cash forecast and tracking– Attain and sustain required capital funds

• Profitability– Revenue growth

– Profit improvement

– Optimize gross margin

– Cost efficiency and control27

• Financial and goal clarity

• Increased profit and cash

• Trusted, long-term business advisor

• Successful exit strategies

EVERY COMPANY, REGARDLESS OF ITS SIZE, NEEDS A CHIEF FINANCIAL OFFICER

THE RIGHT BUSINESS PARTNER THE RIGHT FINANCIAL ADVISOR

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• Preparing for the exit– Executing a sustainable strategy

– Succession planning alternatives– Forecasting potential results with credibility

– Identifying with credibility risks and opportunities to achieve forecast results

• Executing the exit– Business valuation

– Identify potential buyers– Presentations to buyers

– Negotiations– Transition / integration to buyer

SUCCESSFUL EXIT STRATEGIES

CFO Role CFO plus M&A Advisor Role

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• Do the bankers and lenders trust company internal financial statements and the individual directly responsible for prudent financial management?

• Are company internal financial statements accurate, and meaningful for effective business decisions and strategic planning?

• Do company internal accounting staff understand the financial statements from an accounting, income tax, business, and industry perspective?

• Do the company monitor monthly the amount that will be owed the IRS on April 15, and other quarterly or annual payment obligations?

• Does the CEO / Owner receive accurate internal cash flow projections?

• Is the CEO / Owner focused on “finding” customers and revenue?

BUSINESS CHECK-UPDoes the Company Need a CFO?

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• Independent CPA limitations:– Independence requirements

• Is an audit opinion required or anticipated within 3 years– Is the CPA available between January 1st and April 15th

– Does your CPA perform 100% of their work in your office to be accessible to you

• Unique CFO services in which the independent CPA is not qualified– Serve as a business partner and financial advisor– Maintain investor and lender relationships

• Gain confidence in internal financial management– Strategic and business planning– Pricing strategy and models– Key operating metric and accountability scorecards– Recommend cost control without compromising quality and service

• The Contract CFO does not replace the independent CPA– The Contract CFO does not perform attest functions - audits, tax returns, or

business valuations

Comparison to Independent CPA

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• Controller limitations:– Accounting perspective

• All solutions must be black and white– Control perspective

• Optimum controls without cost / benefit analysis

• Unique CFO services in which the Controller is not qualified– Serve as a business partner and financial advisor– Maintain investor and lender relationships

• Gain confidence in internal financial management– Strategic and business planning– Pricing strategy and models– Key operating metric and accountability scorecards– Recommend cost control without compromising quality and service

• The Contract CFO offers a cost effective solution that includes the Controller– Salary and benefits of a reliable Controller plus the cost and support by a part-time

seasoned CFO may be the same as the cost of a strong Controller– Who is the second pair of eyes when the Controller directly performs an activity

Comparison to Controller

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• Long term full time CFO employee

• Interim full time Contract CFO

• Interim part-time Contract CFO with contract staff

• Long term part-time Contract CFO– National Firm– Local Firm– Local Independent

EVERY COMPANY, REGARDLESS OF ITS SIZE, NEEDS A CHIEF FINANCIAL OFFICER

Is A Contract CFO - THE RIGHT BUSINESS PARTNER THE RIGHT FINANCIAL ADVISOR

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• Why not a long term full time CFO employee?– Challenges attracting a desirable candidate– Severance obligation may not be prudent– Short term needs vary significantly from long term needs– Needs do not merit the time and cost of “full time”

• Overpay a CFO who also performs Controller role

• Rely on a Controller not qualified to perform a CFO role

EVERY COMPANY, REGARDLESS OF ITS SIZE, NEEDS A CHIEF FINANCIAL OFFICER

Is a Long Term Full Time CFO - THE RIGHT BUSINESS PARTNER THE RIGHT FINANCIAL ADVISOR

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• The value of a Contract CFO should exceed the cost.

• Value Considerations:

– Determine if a Contract CFO is the best solution for the Company needs.

– Get more information in order to make a professional assessment of the Company needs and determine if the track record and experience of the Contract CFO match those needs.

– Identify other financial management support to meet the Company needs (ie. Controller/accounting staff, specialized consultant, etc.)

– Determine the cost that fits the Company monthly budget. It should be based on number of hours and a fair hourly rate for the experience and services the Company needs.

Cost Considerations!

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• PHASE 1 – Steps we take to determine the company’s needs– Ask about concerns– Interview the appropriate individuals– Review the company’s accounting and/or computer systems– Review appropriate documentation– Review most recent internal and external financial statements– Review key management reports

The CEO / Owner will receive a confidential written report. This valuable PHASE 1 diagnostic report is free. We engage our clients with a handshake

• PHASE 2 – Solve the immediate concerns

• PHASE 3 – Ongoing relationship with the company

WHAT’S THE NEXT STEP?

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Escape The Danger Zone

• Someone is spending time with the current and future customers. If not the CEO / Owner, it will be the competition.

• Engage the Contract CFO for “Minding” Cash Management, Profit Improvement, and preparing for the Exit Strategy for the cost and time only as needed

• Enable the CEO / Owner to focus on “Finding” new customers, open new markets, dream, and have some fun!

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• Tom has over 25 years of experience as a CFO, controller and company President. He has directed companies at a senior management level from $1 million in sales to $140 million and has raised capital from $120 thousand to $95 million.

• He sees himself an executive who is able to break the company’s visions and strategies into workable components that are logical and uncomplicated. He has and continues to strive to use his talents in finance, business and accounting to make companies and their executives and managers more successful.

• In his positions Tom has structured and reorganized departments to provide his companies with competent personnel, in finance, accounting and administrative areas. In addition he has directed the automation of accounting, sales and manufacturing systems including the acquisition of software and hardware. He has created strong internal controls and established measurements and reporting guidelines that gave owners and senior management a quick and accurate view of the conditions of the business. By restructuring the risk management programs and developing cash management systems he has saved a company over half a million dollars per year.

• In special projects he has investigated and completed acquisitions, established new locations and controls of cost and profitability on new product lines.

• When the owner of the company decided to exit, Tom structured and coordinated the due diligence program and assisted in arranging financing for a successful Investment Banker/management buyout.

• He has also provided litigation support through economic analysis and testimony.

• His experience is with companies in various manufacturing areas, services, education and training, and memberships associations.

• Tom is a Certified Public Accountant and graduated from Villanova University with a BS degree in Accounting and received an MBA in Finance from Seton Hall University.

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• Henry Ford:

“If you think you can do a thing or think you can't do a thing, you're right.”

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Questions?

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