Interview with Dennis Reilly
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and finance executive, Dennis Reilly, Vice President Finance, NeoStrata Company.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
How CFOs Can Drive Growth in the Current Economy
Andrew Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure today of being joined by Dennis P. Reilly, Vice President of Finance at NeoStrata Company. NeoStrata Company is a New-Jersey based skincare products with both R&D and headquarters here in the state. And interestingly enough, they’re privately held and they do most of their manufacturing here in the state as well. Dennis, it’s nice to have you here in CFO Studio.
Dennis Reilly: Thanks Andy, I really appreciate you inviting me in today.
Zezas: Thanks so much. Dennis, before we talk about what we’re here to talk about today, why don’t you share with us a little bit about NeoStrata.
Reilly: NeoStrata is a skincare company based in Princeton, New Jersey, and we’re — what differentiates us [from our competitors] in my mind is we’re [selling] clinically proven skincare products. So we really go out and test our products, and we believe they really work. And our customers believe they really work. Our biggest challenge is getting people to try the products, because I guarantee if they try them, they’ll use them again.
Zezas: And how long has the company been around?
Reilly: The company’s been around 23 years.
Zezas: And not private-equity held, but privately held.
Reilly: Privately family held. It’s owned by two families, the families of two doctors, one’s a dermatologist, one’s a scientist, and these two doctors invented Alphahydroxy Acid. And they developed NeoStrata as a company for their own brand of products, these two doctors are in essence rockstars in the dermatology world. [They] have received awards from the American Academy of Dermatology, and have really developed skincare products to help cure skin ailments. And really their whole quest for skincare products came out of studies for skin diseases, and they noticed that many of the effects of these products were great for anti-aging and other skin things.
Zezas: Excellent, excellent. So today Dennis we’re here to talk about the current economy and your views on how CFOs can drive success, drive growth. Let’s talk about the economy first. So given all the funk that’s gone on in the current economic conditions, how have those conditions adversely impacted companies’ ability to secure bank financing, to fund and drive growth.
Reilly: The markets – especially with the big banks I’ve seen have been extremely tight. Everybody is reluctant to loan money. You know, years ago it seemed like if you showed up, just like the mortgage market, the banks were very willing to lend. Nowadays it’s a whole different world. We’ve actually seen that the bigger banks are more reluctant than the smaller banks. We’ve found success at the regional and the community bank level and actually been able to secure a working capital line of credit going down that path and found that they’re — it’s a very different world at that level. But you have to have good fundamentals.
Zezas: And you said you have great relationships with the bankers, I’ve heard you mention that before.
Reilly: Yeah I’m – we’re thrilled with our relationship but we’ve had to develop that over time. They had to get to know us. And now that they have, you know I think I was telling you earlier, we just expanded our line of credit with the bank today. And that’s again, a great banker, a great relationship, people that have gotten to know us, and really spend some time understanding our business, and we’re very pleased and happy with that relationship.
Zezas: Excellent, congratulations on that bank line. So let’s talk about corporations and money, since we’re talking about money. It’s been said that there are as much as two trillion dollars sitting in the coffers of corporations. In the current economy, how is that possible?
Reilly: You know I think most of that’s in big companies, not in little companies like mine. But what I look at it is much like how everybody personally, may have cut back during this tough economic time. I think they’ve just hoarded a bit of cash and it’s not really a bad thing, but really everybody’s a bit fearful in the economy.
Zezas: Banks and corporations.
Reilly: And corporations. Everybody’s holding on, and I think what you’re gonna see out of that is maybe some M&A activity because the evaluations of companies are so low, also on the other side there’s cash sitting there and people wanna deploy it to expand their business.
Zezas: And we’re hearing a lot of noise about M&A companies and other companies, leaning forward ready to go, when the time is right.
Reilly: And the right assets there. I think that’s what people are looking at.
Zezas: Talk to me about bonus plans. How has measuring criteria come into play and changed given current economic conditions in how companies view their bonus plans.
Reilly: I think you know as we were talking about the tough economic times, I think it’s had a real impact on bonuses. I think bonuses in times gone by were almost a rite of passage.
Zezas: It was expected.
Reilly: It was expected. At the end of the year it was bonus time, and people got them without necessarily moving the company forward, creating value for the company, the things that are important to a company. Nowadays I’d say, you really have to create some value to get a bonus. And that’s really, from our perspective in NeoStrata, when times were tough, we didn’t give out bonuses.
Zezas: You and a lot of other good companies.
Reilly: When times were tough, we didn’t give out raises. We’ve turned our company around and we’re on a path of growth so we found that it’s important to reward the people and to continue the incentive to continue the growth. And as long as the company performs, and meets its objectives, we’re gonna continue to reward our people.
Zezas: So the summary there is that bonus plans have basically become bonuses for performance once again.
Reilly: Absolutely. The way they should’ve always been.
Zezas: So you’ve mentioned that your company’s on a growth path. For rapidly growing companies, especially mid-market, mid-cap company, tell me what you think is the most critical role for that company’s CFO.
Reilly: You know, the old “cash is king” thing. For our company it’s really, and I think really for any company that’s in supplies, especially the mid-market type company with rapid-growth, what I’ve seen is working capital, is something you’ve got to keep your eye on closely. And cash flow is king, and we look at cash every week. We’re constantly forecasting out well into the future, looking at our needs, and trying to insure that this growth doesn’t result in a real drain on cash flow. We make a profit. OK, but when you need inventory, or you build sales, receivables grow, suddenly your working capital demands can grow very rapidly and if you don’t anticipate that you’re not gonna be ready for the day. And that’s why we really had to secure lines of credit and things like that because we need to have the ability to borrow a million or two dollars, for a little company like ours, that’s a lot. That can get us through a surge in sales and things like that so I can buy the right products, have them manufactured and get him out the door to my customers which in many cases are overseas. It can take two or three months before I’m paid by that customer so that’s a lot of cash quite often I have to make sure I can afford to finance. And I don’t wanna lose those sales.
Zezas: So it’s managing sales, it’s managing cash flow, but it’s anticipating what’s coming down the road.
Zezas: That’s the most critical role of a midcap CFO in your eyes.
Reilly: It really is.
Zezas: I would agree with that. Finance executives, the world of finance executives’ careers, we all know has changed drastically in the last few years. There are specialists, and there are jacks-of-all-trades. What should a CFO- how should a CFO be promoting himself or herself these days? Specialists, or jack-of-all-trades?
Reilly: I think you’ve gotta be jack-of-all to some extent, but then you have to really have some specialty to differentiate you from your competition. What you are really, what’s gonna set you apart is, why would your CEO recommend you to somebody else down the road? You’ve got to approach it that way. And it must be because they saw you doing something that they saw as different from somebody they’ve worked with before. But I think a jack-of-all is good – and at least to the extent that you’re not a specialist, you know where to get the right help. I think that’s important, knowing – as I think I was telling you before, I’m not a tax guy, but I have a great tax guy that I work with very well. So I trust him. And we have a good relationship and I think we’ve done some great in that area. And it’s not through my expertise, it’s knowing which resource to tap for that.
Zezas: So I heard three answers. I heard one that a good CFO does have to have an area of specialization. He or she should also be familiar with a lot of other areas of his or her job because a CFO nowadays is a COO of a midcap company. And third, that a CFO should also have deep contacts and relationships to bring in outside resources to support the internal efforts.
Zezas: Makes perfect sense. Dennis, we’re almost out of time. I have time for one more question and you know, you’ve obviously got tremendous depth of experience, you’re with a company that is already tremendously successful and probably has most of its success in front of it, and you’ve been around. So, as a CFO, let me ask you the following question. What gets you excited about what you do?
Reilly: I really enjoy being part of sales and marketing organization. I believe, and not to be in a sales meeting or something like that, but I mean to be part of a group that’s creating value. And really I enjoy being part of a business that’s becoming-that’s growing profitably, creating more value, I think pharma biotech things where you’re developing maybe a product that’s going to be down the road a wonderful thing. That’s a great world too, but I’m more of the type of person to be – you know, we sold a thousand of our products this month and we sold two thousand next month, and we’re all on that ride, I get a jazz out of that ride. Because you know you’re creating real value, you know you’ve broken away from your infrastructure and now you’re starting to become profitable – I love that sort of startup environment and I’ve been there with several of the companies I’ve worked for, and I’m there again with NeoStrata. And it’s that ride that I like. When you’re really coming from you know a company that you know in some of these startups where you bought the first pencils and computers, to now you’re on a ride where we’re making money. And I remember one of the companies – our chairman was great he gave us you know we had our first nickel a share in a quarter and we all got a nickel. You know it’s little but it’s fun! We popped champagne corks when we broke through different thresholds. I mean it’s just fun to be a part of something and creating something but creating a real business that’s growing and developing. I enjoy that.
Zezas: That’s very, very cool. Dennis, this has been very cool. I hope you’ll come back at some point to see us again.
Reilly: Oh I definitely will.
Zezas: Thank you, and I want to thank you very much for being on CFO Studio.
Reilly: Alright thank you Andrew, I enjoyed coming, I really did.
Zezas: This is Andrew Zezas, with Dennis P. Reilly, Vice President of Finance at NeoStrata Company, saying thank you for watching us on CFO Studio.
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