Interview with Jack Loprete
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 Jack Loprete, senior finance executive and CFO.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The ROI of Hiring Finance Executives
Zezas: Welcome to CFO Studio. This is Andrew Zezas, your host and I have the pleasure of sitting here today with Jack Loprete. Jack Loprete is a senior finance executive with twenty-plus years experience. He’s both an MBA and a CPA. He’s got multi-national experience, broad industry background, and has been involved in everything from start-ups to IPOs. Jack is here to talk to us about a very interesting topic: The ROI of Finance Executives. Jack, it’s wonderful to have you here on CFO Studio.
Loprete: Thanks, Andy. It’s good to be here.
Zezas: Okay, so the ROI of finance executives. Never heard that before, not quite sure I understand it. What are we talking about?
Loprete: Sure. When companies look to spend money to engage a resource, whether that’s hiring a consultant, hiring a full-time employee, engaging a vendor for goods and services, they often look at what it is they are willing to spend and what they want the results to be; the return on that investment. ROI is a common term, it is used when looking at investment in a number of things. All too often when companies want to engage a senior finance resource, they use a cookie cutter approach of saying, “these are the the responsibilities: take care of day-to-day accounting, accounts payable, accounts receivable, general ledger accounting. These are the qualifications we want to see. Someone with X number of years experience, CPA, MBA, in this industry’s specific.” What they don’t do is say, “I need someone to come in and help me improve my DSO, my collections, or I need better terms with my vendors or better communications, or I need to reduce my outside legal and accounting fees.” Those principles need to be applied when you seek to engage in either a consulting, part-time, or full-time basis that seek those senior resources.
Zezas: So in the same manner that a company would invest money in anything else, with a very defined objective and very often, a defined plan or a series of milestones or performance indicators, you are suggesting that companies should plan to engage a finance executive in exactly the same way.
Loprete: Exactly. Often what companies do is they don’t do that and they don’t have an idea of how to go about doing that since at the time they are looking for that resource, they don’t have that senior finance resource that will help tell them how they are going to get results and how those results are going to help improve profitability.
Zezas: Okay, I get it. So there has to be a goal, there has to be a defined plan, and there has to be a process to achieve the goal. But we are also talking about measuring, so the idea here is ROI of a finance executive. So how do you measure the performance of a finance executive?
Loprete: When you engage sales resources, for example, whether they are external reps or internal sales resources, you set up goals and objectives for how much revenue you want them to generate over what period of time. This is a very tangible example. With the senior finance resources that you’d like to add, put those metrics in place and it may be, and often I find that I am in a position where when I talk to that client, I am helping them establish what we can do to help them get results. So, I would expect my DSO to go from 40 to 35 days over X period of time. I would expect to file my taxes and my audit closed on a timely basis. If that’s by March 15th, March 31st, April 15th, whatever that date is, specify it, draw it out, so both parties understand what the expected results are and when they are to be delivered.
Zezas: Improve communications with vendors, improve relationships with partners, but actually to define this, not in broad terms, you are talking about very specific terms so you can measure against it.
Zezas: Okay, alright. I get that. So, we are talking about measurement, but you started out by saying that a lot of companies don’t have a process in mind. So, are they making mistakes when they are hiring as a result of not having a process?
Loprete: I don’t know if it’s mistakes necessarily. But the time it takes to find the right finance resource is typically a long lead time, because there is not a clear understanding of what you want that resource to deliver. You may think that you want someone with ten plus years, managing in a senior finance role in this specific industry. As an example, I had one client who was a healthcare provider. So, they were a network of doctors and nurses delivering healthcare services in a very specialty way to patients. When I talked to them about a senior finance resource to help manage their practice, I had no direct experience managing practices but I had spent a number of years working with the healthcare insurance industry on that side of the fence helping to engage and to develop provider networks and manage the approval or adjudication of claims with those providers. It so happens that as I looked at and worked with this client on the provider side, I was able to cross to the other side of this fence and help them get better terms- better turn around on their claim submission with their managed care patients. So that is an example of how if they looked for only someone who had experience in managing a large healthcare practice, they wouldn’t have gotten the benefits that they got.
Zezas: So more breadth, broader expertise, maybe a little bit of diversity in their expertise, other industries, other focuses, but we are not saying not to focus on the industry just to have an industry focus plus.
Loprete: That is correct.
Zezas: So, is there a right way and a wrong way? Should companies only focus in their industry? Should they only focus on candidates that are broad or should is be some sort of combination?
Loprete: It is very subjective. There is no right and wrong way. A lot depends on what brought about the need for this resource. Are you replacing someone who existed? Were you unhappy with their performance? Were you happy with what they were doing? If so, what were they doing that made you happy and how do you want to replace that? If this is a new role altogether, then that’s all the more important to be clear about what it is you need and what it is you want from that resource.
Zezas: Okay. That is what you started out saying. As a CEO of a company, if I am going to make an investment I should have an objective in mind of what my return expectations are and that holds true for a finance executive as well.
Loprete: It does, but in this instance, as it is the case when many people are selling goods and services, you’ve got to make a clear and cogent case for the return. Meaning, as that potential candidate, I am going to have to show that company how I can deliver the desired results in the time frame they want.
Zezas: So presumably, as an interviewer, I should be looking for the candidate to guide me during the interview process as to how they are going to help me set up my goals. Presumably I have set up broad goals to begin with, but the candidate is going to help me further define my goals, correct my goals, and then achieve them. And to the extent that the candidate is not talking to me about that, maybe he is not the right person.
Loprete: That is exactly right. For example, I hear a lot in those discussions, “So Jack, tell me why you think you would be a good addition to our company?” And more often than not my answer is I am not sure yet that I would be; let’s talk about what it is you need to do and when you think it should be done, and maybe I’m not the right resource but maybe I can suggest to you somebody or something that is a better way to go about that.
Zezas: So in seeking a CFO, companies should actually be looking for, if I am hearing you properly, a candidate who has an advisory perspective because as a CFO I want my CFO to advise me anyway, after I hire him. In the interview, I’m looking to see if he is advising me and if he is telling me maybe I am maybe I’m not the right candidate, but not leaving me hanging in the event that he is not, he will help me find somebody.
Loprete: That’s right. As with any employee or partner in your business as a client or supplier, you want to find a relationship that is mutually beneficial. In other words, is this person happy and comfortable with what I am asking them to do and can they do it? And if they can, then they are doing it and delivering it to me when I want. Both sides win.
Zezas: And it is a partnership with the CFO. And we are talking about primarily small, mid-cap companies, primarily privately held companies in this discussion and we are talking 5 million to 200 million dollars in revenue?
Loprete: Generally, yes. But you are right on the point that probably one of the most important partnerships in the company is the relationship between the CFO and the rest of the senior finance team, particularly CEO. So having a clear understanding of what those responsibilities are, and who is going to deliver what all around the table, is critical to a successful organization, the CFO is no different.
Zezas: And in a company of that size and that magnitude, the CFO is typically a very diverse individual and I think we have discussed before that really in that company, the CFO is almost the COO.
Loprete: Yeah, you wear a lot of hats and in smaller companies you are looking for a CFO to do things like manage the HR process. Perhaps you have too much turnover and we have to look at benefits package, your hiring policies, and so on. Maybe you are doing too much outsourcing contracts to attorneys, and maybe you need someone who is more contract savvy on the inside; CFOs can do that. The different options today with voice and data and IT resources, CFOs need to be savvy with what those options are, and how to go about getting the best option for the company. There is a broad range of knowledge that you would want that CFO to have based on the size and shape of your company.
Zezas: So, if not in title, then certainly in practice a CFO is a COO, in this size company. Let’s talk about something more traditional, debt and equity. What is the current environment for mid-cap companies who are looking for liquidity events both on the debt and equity side? Is it good, is it bad, is it ugly? What’s the circumstance?
Loprete: The answer here kind of feeds back to what we just talked about. Meaning, if you are clear that you want to do a transaction of some sort whether it’s get a credit facility, or restructure an existing one, bring money into the company by looking for venture, or private equity or basically just the sale of equity. If you are clear about that, then you want to look for somebody in that role who has experience with [that] and can help you do just that. Now, I have often gone into companies where they are looking for someone, but they don’t want to disclose that information because they think it might deter someone from taking the position. That is not the way to go about getting the right fit for the role that you want. Having said that, the environment out there today is, I think there is no question, that it is still a very difficult environment for companies to do a transaction where they are going to generate debt or sell equity.
Zezas: But money is there.
Loprete: The money is there on the sidelines, that’s the good news. But it is kind of a one-two punch, investors and creditors are being much more circumspect about who and how they invest. And companies today in the economic downturn have to be much clearer in how they are going to use those proceeds to improve their results.
Zezas: Okay, so the money is there, it is a little bit challenging to get, but with the right finance executive you can secure the debt and the equity but make sure you have the right finance executive who can get it for you.
Loprete: That would be a key element in the process, yes.
Zezas: Jack, we are about out of time. Any last final words about either debt equity or what I think is a great topic that we could probably talk about for a very long time, the ROI of finance executives.
Loprete: Well, I want to first thank you for having me here today, I appreciate the opportunity to talk to you at CFOStudio.com. Secondly, I think that forms like this where companies can see what it is they can get from senior finance executives, and how both parties can benefit from that are critical to improving the process.
Zezas: Thank you very much, I appreciate that. Listen, Jack, I want to thank you very much for participating here at CFO Studio. It was nice having you here again and I hope you see us again. This is Andy Zezas, your host at CFO Studio with Jack Loprete saying thank you for watching, we will see you again.
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