Interview with Tim Anglim, President of YesCFO
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 financial executive, Tim Anglim.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The Role of the CFO in Privately-Held Companies and Not-for-Profit Organizations
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure of sitting here today with Tim Anglim, President of YesCFO, LLC. YesCFO provides fractional and interim CFOs to small and medium sized businesses that don’t require a full-time CFO. Tim is here today to talk about the role of the CFO in privately held companies, and not-for-profit businesses. Tim, it’s wonderful to have you here on CFO Studio. Thank you so much for being with us.
Anglim: Thank you Andy, I’m glad to be here.
Zezas: Tim I have a list of questions for you and I wanted to jump in and see what your thoughts are since the last time you’ve been with us here. Let’s start out by talking about the steps companies are taking nowadays given what’s going on in the economy to maximize gross profit margins.
Anglim: Well generally, cost control was the primary focus as we all can see from the layoffs that have happened over the past couple of years. But that has pretty much run its course. There’s an awful lot of indications that we’re coming out of the recession, that growth is starting to happen, and people are starting to hire again. So, now the balance is on trying to determine, “should I start to build inventory?” in the case of a manufacturing company, or “am I going to put on people, hire staff?” in the case of a service-oriented organization. So there’s a risk there, a balance, that you have to come up with to try and identify what’s the best approach in these times.
Zezas: Alright so, evolution is occurring. Change is a good thing. It seems like it is positive change. The CFO role is changing as well. So let’s talk about the greater focus in recent years that CFOs are having with respect to the importance of transparency, and disclosure. Given those very important components of a CFO’s role, how has the role evolved, how is it changing?
Anglim: The role has gone from more of the old financial traffic cop syndrome to something more akin to a strategic partner, a visionary, a business conscience.
Zezas: Wait, you said CFO financial traffic cop? I just had a vision of a guy with financial reports and a whistle standing in an intersection.
Anglim: Well you did. That was the guy with the green eye shades years ago, and he was it.
Zezas: Perfect analogy, perfect analogy. I didn’t mean to cut you off, go ahead.
Anglim: Yeah, so today you become more of a jack-of-all-trades but expert-in-all. You cannot be a semi-experienced kind of guy today in a CFO role. Small and large companies as well. And it is something that has evolved, but the regulatory environment we’re in, the litigious society that we’re in, demanded that every relationship somehow crosses the CFO’s desk.
Zezas: OK, so how does that differ with respect to large, medium, and small companies? I’ve got to believe that the qualifications and the requirements of the CFO in those three company sizes might differ.
Anglim: It’s true, it’s a good question. The differences are though that in a larger company role, the CFO has a staff, he has additional resources. Resources are thinner; organizations are flatter, when you get down to small or the mid-sized companies. Consequently, you have to be — you have to have the ability to be hands-on in all these different areas, you can’t just rely on your expert or your team of experts to do these things.
Zezas: In a large company, medium company, or a small company?
Anglim: In a large company you have the ability to delegate. [In a] smaller company, you can’t. In all companies you can’t delegate responsibility. So you have the ability to do this with a team as you go down in a hierarchical organization – the larger companies. But with flatter organizations, start-ups, whether they are mom and pop’s, or any organization that is little flatter because of course restrictions. Particularly in private businesses. You have to be able to handle all of those areas.
Zezas: Yeah, the resources just aren’t there, and you’re required to be broader.
Anglim: Same skill sets are required.
Zezas: Very interesting. So now we talked about large, small, and medium. Give me that same comparison between public and private and non-for-profits.
Anglim: Public and private is a good one. Right off the bat, anybody dealing with public companies, knows about Sarbanes-Oxley, knows about the SEC, and knows about the level of regulation that has come out of Washington, and even the states to some degree, that has been the norm today. Everything since Enron or whatever has changed that realm. Private companies, and mind you private companies are becoming a bigger part of the mix, and private does not mean small. Private is an indication of your corporate formation and how you find capital. It is not a differentiation of size. There are some very large private companies out there, there’s cargo, there’s Koch industries, the Marmon group which is the Pritzker family, which owns the Hyatts and Union Tank cars. Lots of large private companies that are very diverse.
Zezas: Huge in what you just compared.
Anglim: Huge in those cases. And there’s the, let’s say small-to-medium businesses, maybe up to five hundred million. A whole host of good-sized private companies are out there. Those companies are different but the pressures are just as real.
Zezas: And the requirements of the CFO in a privately held company versus a public [company]? You’re saying…
Anglim: It’s a different dynamic, for instance I’ll give you an example. Private companies are kind of cut off in the capital markets. So you’re not dealing with the SEC. But on the same token, you can’t sell stock, in most cases. Many of those companies, maybe the majority, are sub-S. Or as opposed to a C-corp. Subchapter-S corporation is a corporation, but its shelves are limited in that you cannot go out and solicit new funds very easily. It’s very difficult. You can lose that status. A C-corp can decide to go public if you will. But on the other side of it, there are LLCs, LLPs, a lot of other corporate forms out there that are in the private realm. But their focus primarily in getting money is from either venture capitalists, private equity firms, or from getting it through debt, through borrowing. Consequently the limitations create a whole new set of problems in how to keep a growing company going on the private side of the world.
Zezas: And that falls to the CFO of course.
Anglim: Yes it does.
Zezas: And how does that differ for the not-for-profits CFO?
Anglim: Well, not-for-profits you know, a lot of those folks have the same issues that profits have. I mean, credit unions are not-for-profits, and not-for-profit bank. There are CDFI funds out there that actually fund growing businesses as their mission in life. However they still have cost issues. They still have to replace their revenue stream. Whatever they did today, they’ve got to replace that customer tomorrow. The customer may be, not customer but source of money, let me say it a little differently. Their ability to generate revenue is driven by the folks that back them. It could be a government-subsidized entity, there are lots of large banks that back somebody’s financial not-for-profits. They’ll lend money to them just like any other enterprise, but they’ll also grant them, or put in a non-returnable grant of income. And so they’ll use that for some mission. Whatever their mission is they’re a not-for-profit mission. But the CFO in that role has to drive the enterprise constantly, to regenerate itself very easily. [They could] have a very tough year because their ability to fund something could just dry up overnight. Especially, with government cost-controls that are coming out right now.
Zezas: So, in for-profits, whether they be private or public, we‘ve seen that the CFO’s role has morphed into sales support, and almost the role of the Chief Financial Sales person in the organization. It sounds like for a not-for-profit, it’s the same thing, but you’re not looking to drive sales and revenue, you’re looking to drive grants or revenue that comes in from a different source.
Anglim: True, true. And with the way the world has changed, there’s a part of the mission of what the CFO does in both the non-profit or the profit arena, is the going concern of the value of business. It’s a little more exacerbated in a not-for-profit in the sense that they don’t have a regular customer stream. The recurring sale is not the same. It’s a lot of one-offs, a lot of replacement, almost a custom kind of work. So their source of funding is a real strategic issue. Is the entity going to exist next year? Can they keep the same headcount? Can they provide the same services? It’s a little more difficult there, but yet again they don’t have the tax issues, so that’s trade-off. You don’t have the SEC issues, and you don’t have the oversight issues that you would typically have with public companies.
Zezas: And in our experience, with a lot of not-for-profits, very often they’re long on great intentions and mission, and short on resources. That probably extends to the finance function as well very often. So let’s stay with that. So we’ve talked about the fact that, especially in smaller companies, the CFO is required to be much broader in his or her expertise. So, in order for the CFO to continue to grow as a professional, in that role, how does he or she develop specialized skills and expertise?
Anglim: You can’t stop learning. By that I mean that you have to talk to your customers, you have to talk to your employees, you have to understand what their issues are, and find out those things that they need. Those are your internal customers, just as much as your external customers too. You have to identify the skills that are missing; you have to know when to ask for help. Maybe bring in outside help, on those projects that necessitate expanding temporarily, the role of the CFO, or I should say the ability of his team to accomplish a particular mission. It’s something that you need to track. You have the need to see just what it is that you’re missing on. It’s much like a quality control issue.
Zezas: It’s a real proactive approach it sounds like.
Anglim: Yes it is.
Zezas: You’ve got to be in charge of your own future.
Anglim: Yes it is.
Zezas: Tim we’re running out of time, I want to ask you one more question. Given what’s going on in the world of finance and the world of CFOs, are typical CFOs still considered a numbers person or has that role really evolved, and are they really utilized to their best abilities these days?
Anglim: Accountants are known for their numbers. We all are. Financial people, per se. But you have to go beyond the numbers, you have to peer through that stuff and actually get down to what’s driving it, what’s the engine driving the business, and what are the things that affect it? Do you need to tune that engine up? Are there missing pieces? Do you need to change the oil, so to speak. Grease the bearings and everything else that goes along with that. Business is a machine. And you need to focus the organization internally and externally in making sure that you address all the issues that go on with that business.
Zezas: So that you’re not perceived only as the numbers person.
Anglim: That’s right.
Zezas: Makes perfect sense. Tim, this has been a wonderful interview. I’m glad you were able to be with us again today and I hope we have a chance to invite you back. Thank you very much for being on CFO Studio.
Anglim: Andy, thank you. It’s a pleasure being here.
Zezas: This is Andrew Zezas, your host at CFO Studio, with Tim Anglim, president of YesCFO. Thank you for watching.
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