The CFO'S Perspective

The holidays are here. Letters are pouring in to Santa and to our editor. Here is one such letter and the editor's response.

“DEAR EDITOR: I am a CEO.
  Some of my friends say there are no good CFO’s.
  Papa says, ‘If you see it in THE SUN it’s so.’
  Please tell me the truth; are there any good CFO’s?”
 ----- From Virginia, CEO

Don't ever let your business get ahead of the financial side of your business. Accounting, accounting, accounting. Know your numbers.” - Tilman J. Fertitta

When it comes to financial statements, one size definitely doesn't fit all. In fact, as your business grows and evolves, your financial statements should too. Their primary purpose shouldn't change, which is to provide business owners with actionable information. However, as a business matures, and potentially becomes more complex, with an increasing number of opportunities to pursue (or not) the statements need to be able to keep up.

There isn't a hard and fast rule about what you should look at, and at what stage those needs will vary. What should be true, however, is the owner's commitment and rigor around the process of what is reviewed and when. For businesses that lack the full-time need of a CFO, a part-time or project CFO will provide the expertise necessary to produce financial statements that are appropriate and relevant to generate information (not just data) that helps solve real business problems.

I happen to lead an organization made up of those financial executives and can offer that I face the same challenges you do when evaluating what I need to run the firm. Primarily, how do I make sure I have what I need to make good business decisions?

It's a tough environment for small businesses in the United States, particularly new ones. The Bureau of Labor Statistics reports that almost 20% fail in their first year and only about half make it to five years. The threats are piling up, and they range from failing to find a viable product or service to customer service gaffes and even cybersecurity issues. But some of the biggest problems that small businesses face are financial in nature.

Financial woes can impact a company of any size. 2018 marks the 10-year anniversary of the height of the financial crisis when regulators walked into Seattle's Washington Mutual and shut down one of this nation's largest regional savings and loans for good. Few longtime area residents have forgotten the impact that Frederick & Nelson had on the area's retail scene, before becoming victim to some strategic and financial missteps. Whether a company is large or small, public or private, many of these issues begin at the granular level.

Repeat after me…

Accounting is a team sport."  

This has been my mantra for the past 30 years and it’s as important and true now as it was 30 years ago.  What I have learned in my 30+ years as a CFO is that accounting works best when it is integrated with the management team and you will never be at your best if your accounting team works in a silo.    

I have not failed. I've just found 10,000 ways that won't work.
- Thomas A. Edison

For whatever reason, you've determined that it's time to close the doors and walk away from your business. Shutting down your business may be the hardest thing you'll ever do, but it's not uncommon. In fact, 90 percent of start-ups and early-stage companies close each year in the U.S.

If it's any consolation, most successful entrepreneurs have failed previously at some venture - or several. Walt Disney was reportedly fired by a newspaper editor for having no imagination and lacking good ideas.

Currently the world's richest businessman, Jeff Bezos had several failed ideas before Amazon took off. Most notably, his auction business called zShops never gained any traction. It's important to realize that it's okay to stop pursuing an enterprise that isn't working and start doing something else.

Closing a business, however, involves more than just shutting the doors and walking away. If you do this, you could open yourself up to unnecessary fees, loss of personal and business reputation, and even lawsuits. When making decisions about closing a business,  visibility to see issues coming is vital. Good financial advice is a great place to start.

There are professions that most people would consider trustworthy. Doctors & nurses, firefighters, and teachers all come to mind.  How about accountants?  Do you trust your bookkeeper?  The reasonable answer here is: Yes!  Trust is often built over time, through relationships and evidenced by past and ongoing performance.  The reality is, if you didn’t trust your employees, they probably wouldn’t still be working for you.

This is Part 3 of a series on the causes of a perfect employee fraud scenario.  Read “Employee Fraud Factor #1: Pressure” here, and “Employee Fraud Factor #2: Opportunity” Part 2 here.

In case you missed Part 1 & 2, there was once a really smart guy, Donald Cressey, who created a theory that said: “If three factors were met, any ordinary, trusted person could bring themselves to commit fraud.”

This is part 2 of a series on the causes of a perfect fraud scenario.  Read “Employee Fraud Factor #1: Pressure” here.

In case you missed Part 1, there was once a really smart guy, Donald Cressey, who created a theory that said: “If three factors were met, any ordinary, trusted person could bring themselves to commit fraud.”

In other words, given the right situation (or perhaps wrong situation), anybody could commit fraud.  Not just criminals, not simply “unethical” people, and certainly not just somebody ELSE’s accounting staff.

The three factors include:

>  Pressure
>  Opportunity
>  Rationalization

In Part 1 we talked about the first factor, Pressure, and how a person with an apparently SECRET financial problem might feel no other option than to steal company money.  They are on the prowl for just the right opportunity!