CFO Studio | Monthly Archives: October 2016October 2016

Transforming an Old-line Company

As Seen in CFO Studio Magazine Q4 2016 Issue

After 15 years in public accounting, Robert Friedman joined BAMCO, Inc. 10 years ago as CFO. Despite having little experience in the building industry, he strategized a new future for BAMCO as an industry leader in the green-building space, designing, fabricating, and installing metal panel systems for commercial building exteriors. Andrew Zezas, Publisher of CFO Studio magazine and host of CFO Studio On-Camera, spoke with Mr. Friedman about making over an old-line company to be a profit machine.

(ANDREW ZEZAS) You arrived at the company and encountered some challenges, but it was a rock-solid company. What were the first objectives you set for the company?

ROBERT FRIEDMAN: To become financially best in class. The first thing I did when I came in was I sought to be a sponge, to learn anything I could about the company and everything I could about the industry.

You were brand-new to the industry?

FRIEDMAN: For the most part, yes. I had some exposure to the industry through public accounting, but I was not an expert by any means. So I interviewed everyone inside the company. I spent time in all the different aspects of the company to see how everything worked, the processes, the people, the capabilities, things like that. And externally what I did, which was one of the most helpful things, was I joined the Construction Financial Management Association. Each year they do an annual survey of their membership, and you’re getting high-quality, very deep data on financial ratios, balance sheets, P&Ls, and the structure of those.

And do they produce that report themselves or through an outside firm?

FRIEDMAN: It’s produced with the help of Mercer Consulting. What I did was basically model our financials in our accounting system after this benchmark information.

I’ve got to believe as you were starting to set the foundation to restructure things, you’ve encountered sacred cows and “you know, we’ve always done it this way and this is forged in concrete.” How did you deal with these issues?

FRIEDMAN: Oh, there’s no question. But as a result of setting up these systems, we got a lot of great information. We are in a business of running jobs, and what we found out was that 80 percent of our profits were really being generated by only 20 percent of our jobs. And the jobs that were generating the most profit were the jobs where we were using our proprietary product that we had developed, and we weren’t really promoting this product.

So, you were able to affect how they were thinking about their business?

FRIEDMAN: Yes, and over time, Andrew, what happened was that we flipped it: 80 percent of our business became working in this proprietary product, and we sought to become experts and the best in the business in this particular niche.

And where does the company stand today?

FRIEDMAN: Well business is competitive, but we’ve become, I think, a regional industry leader, and it’s a great company for which to work.

Sudden Scale

As Seen in CFO Studio Magazine Q4 2016 Issue

Boosting the ROI from a roll-up

Expect more roll-ups as baby boomer entrepreneurs decide to sell.

Roll-ups involve the acquisition of several businesses over a short period of time. A one-stop shop can be created if the acquired businesses are complementary. Geographic coverage can be accomplished if the acquired businesses are competitors. Either way, a roll-up is an ambitious, capital-driven path to growth. The corporate CFO is typically expected to lead due diligence, conduct valuations, and find cash. It is equally important for the CFO to remain engaged after the deal(s) are signed.

Imagine what is involved when multiple businesses are acquired quickly. In addition to the strain on capital, integration involves people with divergent philosophies, companies with varying cost structures, and customers with different expectations. Former business owners/entrepreneurs won’t respond well to micro-management or nagging. Entrepreneurs choose to participate in a roll-up in large part because they crave strategic discussions, effective global marketing, competent financial management, and rewarding peer relationships.

If you are the corporate CFO during a roll-up…

Delegate

Once deals are made, the priority is the generation of profit from the combination of the acquired businesses. Integrating disparate businesses takes time (therefore money), so most corporations make only minor adjustments during the first year. The corporate CEO uses the first year to evaluate the leadership of purchased companies. Frankly, the CEO can quickly feel like the foster parent of squabbling children who all crave more attention.

The corporate CFO is asked to standardize and centralize accounting to look for possible cost efficiencies. In my experience, the first year is more productive when the CFO delegates documentation and analysis of past and current performance to the Controller. That way, the CEO, the CMO, and the CFO can all focus on creating the future. Together, they will consider important questions about what kind of customers will value a one-stop shop, which capabilities of the individual companies can be leveraged, and how pricing should be approached for bundled services.

Stand Up

In a publicly traded corporation, there will undoubtedly be pressure from shareholders and Board members. It is less likely that the corporation will make questionable decisions when the CEO, CFO, and CMO confer and involve the entrepreneurial leaders of the acquired companies. For example, it could be tempting for one executive to conclude that everyone should back off of marketing and sales to focus on the top few customers to squeeze out as much short-term profit/cash as possible for the corporation. With three future-focused corporate executives, the risks associated with taking a shortsighted approach like that would at least be discussed. Forcing the entrepreneurial leaders of acquired businesses to live with bad decisions erodes credibility, trust, communication, and profit.

Earn Trust

Leaders of acquired businesses are often susceptible to “seller’s remorse.” Their financial livelihood and professional reputations ride on their decisions to sell. Being part of a corporation with lousy marketing, inconsistent rules, and/or hidden agendas can lead a former president to just focus on his/her earn-out. They can become reluctant to accept more responsibility. And they can become paranoid that valuations impacting earn-outs will not be computed fairly. That reaction can be prevented if the CFO provides transparency, consistency, logic, and fairness.

Your Network

As Seen in CFO Studio Magazine Q4 2016 Issue

The deeper value of casual business acquaintances

One day, even if it’s long into the future, you may find yourself in transition, and you may need to leverage your network of contacts for a new role or leads on a new role. As a senior finance executive, the time in transition can go up as your compensation increases. While the overall job market is strong, there is a trend towards outsourcing, moving roles to lower cost centers, and using technology to perform what were once core finance functions. In short, what’s available out there can become an increasingly mixed bag.

It’s What You Do

You’re a finance professional. Your value is being able to provide business insight from both the data you analyze and from the internal company relationships you build in order to tell a business story; you use your insight and relationship-building ability every day in order to partner with your CEO.

But your real CEO and partner is yourself and your family. There is a line from Nicholas Cage playing Jack Campbell in The Family Man: “Business is business. Wall Street, Main Street. It’s all a bunch of people getting up in the morning, trying to figure out how they’re going to send their kids to college. It’s just people.” And it’s the truth. Everyone you meet is essentially trying to do the same thing. So everyone has a responsibility to manage their career for themselves and for their families. How do we do that? We make sure that we are just as proactive in building out our network of contacts as we are in being proactive about supporting our current CEO. We make sure that we use that same ability to be insightful about business and to build relationships internally in order to construct relationships with our personal network of contacts.

We’ve Only Just Met

So the question becomes, do I reach out only to people I have a deep friendship with or whom I feel an immediate connection to?… or do I become consistent in reaching out to people whom I would consider casual business acquaintances?

The best thing you can do for yourself is to be proactive in reaching out to the people you meet (even if you do consider them casual business acquaintances) with an eye towards initially speaking with them (if you have just met them) and then to catch up periodically.

If and when the day comes that you need to call on your network for leads on appropriate roles, you won’t even have to ask for a job, you’ll just be “catching up.”

Your network will think of you when they hear of something, and they will keep you in mind. Your consistency will have helped you, and you’ll be responsible to your real CEO.