Interview with Bob Hutton
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio video between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and Bob Hutton, senior finance executive.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Accounting, CFOs, and the Economy
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure of sitting here today with Bob Hutton. In Mr. Hutton’s capacity as a senior financial executive, he’s partnered with company owners and helped them innovate to improve financial performance. Bob, it’s great to have you here on CFO Studio. Thank you for being here with us.
Hutton: Thank you very much. I’ve been looking forward to it.
Zezas: Bob, there’s been some very much dynamic conversation going on in the business community, especially as it relates to accounting standards: large companies, small companies, not-for-profits. Let’s focus on privately-held and small companies. Should there be separate accounting standards for that business community?
Hutton: Before I answer that Andy, let me just focus on “standards don’t drive profits.” In the small environment, the owner or owners are looking for maximizing profits. Does that generally include standards – probably not. But, when an organization, and those standards come into play, when they’re internally generated cash is not enough to fulfill a growth potential, another investment, and that is when standards do have to apply. The third party, generally, for most in the environments where I have been CFO, the bank, either through a line of credit, mortgage on real estate properties. And, in those environments, the standards are pretty much defined by the financial institution with whom you’re working. You know very well, in real estate, is loan to value going to change…probably not. Is income to debt going to change…probably not. But inside standards, when you get into public companies when you’re talking about true external investors, standards are those public disseminations of information. Unfortunately, in the small, single owner, privately-held, their number one relationship is with their bank.
Zezas: Is it your opinion that standards should be different for small and private companies?
Hutton: As accountants, we grew out of our education with the same standards. I think the basic standards of debits on the left, credits on the right are universal. Standards, and let’s cut them into two definite buckets. One being recording the transactions of the entities; how much money did we make vs. external reporting. And those standards, I think a lot of people get them confused.
Zezas: Recording vs. reporting.
Hutton: Recording vs. reporting, two key words. All the transactions are recorded somehow. How are they reported to external parties that are consistent to industry standards, whatever the case may be. There should be uniform standards as soon as you cross that imaginary line.
Zezas: From recording to reporting.
Hutton: Correct. But, again, in the privately-held space, the bank is generally going to be dictating loan covenants. How much money do you have on account, in our bank, etc., which are very well defined and finite by definition.
Zezas: Understood. Let’s move on to the role of the CFO: large vs. small, public vs. private. How would you say the role of CFO differs depending upon the size or the type of company?
Hutton: Going from big to small, the face of the organization, external discussions vs. down to the small one, the trusted advisor of looking at business opportunities with another set of eyes than the owner.
Zezas: And, on the small version of the trusted advisor, it’s really an internal discussion.
Zezas: Okay, I got it.
Hutton: And, again on the inside small environment, how much money is this going to make for me? It’s always a bottom line conversation. I go back to those smaller environments, you normally have two conversations: cash flow, tax consequences.
Zezas: How does that differ in comparison to a large company with the role of CFO?
Hutton: CFO, in a bigger organization, a lot of that reporting issues come in and external reporting of how are we communicating this to the public in a way – what audience are we addressing?
Zezas: And, you’ve said that on a large scale that a CFO almost becomes the face of the organization, at least from a reporting and finance perspective. That makes perfect sense.
Hutton: In a small environment, the face is the owner.
Zezas: Is the entrepreneur or the owner. I got that.
Hutton: The bank is looking for his signature. CFO sometimes doesn’t carry much weight.
Zezas: Let’s continue with the role of the CFO. How has it evolved, generally speaking, large to small, how has that role evolved in the last five to ten years?
Hutton: Great question! A lot of it evolves from the individual. There isn’t one CFO that is exactly like the other CFO. We’ve all had different experiences that move us in various directions. There – what’s the word l’m looking for- of those opportunities that have been presented to that individual. Does that allow him or her to move out of their comfort zone? And, I’ve always taken the approach that, in a small environment, what is your objective as the owner? What is the ultimate customer, the external customer that we are trying to, and I use that term ‘we’ because I’ve partnered with that individual, of how this whole organization focused on the person from whom we wish to derive cash. To increase the profits, it all goes back to that.
Zezas: That profit word, again, the big P.
Hutton: That’s right. It’s an interesting dynamic because in smaller organizations, you’re probably a lot closer to the customer than a publicly traded CFO who- well you can’t say it that way, you’ve got to say it this way.
Zezas: More cautious. Is it fair to assume that privately held or small organization that in the last five to ten years, the CFO has actually become closer to his external customers?
Hutton: Oh, definitely. There isn’t any way about that based on the whole economics that we’ve been going through. It’s what is happening in that business and the relationship that they have with their customer. In the smaller environment, more people in that whole company have a relationship with the customer.
Zezas: With the customer, especially with the CFO. That makes perfect sense. So, let’s keep going on the CFO role. Small companies, privately-held companies, is the CFO, whether it’s a man or woman, is he or she recognized for his or her true abilities, and utilized to the fullest extent nowadays? Or are they still perceived as the spreadsheet and the numbers guys?
Hutton: In the small environment, your skill set is this wide because you’re responsible for a myriad of –
Zezas: More diverse, more broad, more responsibilities.
Hutton: That’s right. From HR, IT…
Hutton: Operations. In the smaller companies, you don’t have those layers. You don’t have the economies of scale. The economies of scale come in the person.
Zezas: And the small companies, you’ve got finance executives going out on sales calls.
Hutton: That’s correct. You know, visiting a tenant that has an issue of a leaking roof.
Zezas: Or a customer, depending upon the industry.
Hutton: And, it’s always having that conversation that you have. It comes down to somewhat common courtesy, that if you have that relationship, that customer is calling you and saying “I normally have paid everything within my thirty days. Could you give me…”
Zezas: I need some help. And, he’s talking to the finance guy. So, the finance guy has truly become not only more diverse, but is used for even greater reasons, and not nearly considered to be a spreadsheet or just a numbers guy anymore.
Hutton: You know that goes back to my comment of trusted advisor. You’re taking on a different role even though my training is always going to look at an equation from a certain skill set versus an engineer’s or an entrepreneur.
Zezas: And, you’re going to draw on your finance expertise, your strategic expertise, and your operational expertise. But, you’re going to apply it as a business manager, more or less compared to as strictly just the numbers guy. Let’s talk about the last couple of years and I want to talk about this quickly if we can. The last couple of years have been weird in a global economy. If you had to coin a phrase, would you say that expense management or revenue weakness has been most troublesome for most companies or the greatest challenge?
Hutton: Immediately, revenue.
Zezas: Revenue weakness has been the greatest challenge. Why do you say that?
Hutton: Well, let me answer it conversely. From cost control, that’s defined, it’s internal. You can cut, ask people to do more with less, but at a certain point you get down to the bare bones and there’s nothing else left. If we’re not driving the revenue process in some way, turn out the lights, lock the door, and call it a day.
Zezas: So, you can costs only to some point, but if there’s no revenue you’ve got no business anywhere.
Hutton: Yeah, that’s right. If you’re making something, you need money to make it. If you’re supplying a service, you need the people to supply that service and it does come at a price point.
Zezas: That makes perfect sense. Bob, we’ve got about thirty seconds left. I want to ask you one last question. What do you think, in this very weird economy that we’ve come through, has most dramatically changed your view of the world or the economy?
Hutton: Two things: fraudulent business practices- taking advantage, and secondly, to some extent, not my problem, I’m not part of the solution.
Zezas: That it’s somebody else’s responsibility.
Hutton: It’s somebody else’s responsibility. And, those two things are bothersome to me personally.
Zezas: That says a lot about you as a finance executive and how you provide service to your clients. Bob, listen, I want to thank you very much for being here with us on CFO Studio. I truly appreciate your insight and your ideas. I look forward to having you here again.
Hutton: Thank you, pleasurable.
Zezas: This is Andrew Zezas with Bob Hutton for CFO Studio, saying thank you for watching.
Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.