 |
Dealing
with CEOs of small companies can be tough. Before he starts,
Brad Howe makes sure the CEO knows there'll be some changes
made. |
Frank Powers, president of National Check Protection Service Inc.,
in Braintree, Massachusetts, a clearinghouse service for banks that
has been in business since 1964, has used the part-time CFO services
of Bradlee T. Howe and his company, Financial Managers Trust, for
about two years. "We had our own bookkeeping department, but
we needed expertise on cash flow projections and so forth. Hiring
Brad was the best move we ever made."
When Howe was profiled in CFO magazine in July of 1985, he was grossing
about $135,000 annually and was working more or less solo; a colleague,
who was a bookkeeper, helped out on discrete assignments. Since
then, Howe has added three full-time people. Annual billings now
approach $300,000. The majority of Howe's clients are small, already-established
companies in low-tech fields such as retailing-"normal, everyday
companies that got into trouble or that have a new idea or opportunity
to develop," says Howe.
Howe meets frequently with client CEOs to discuss the implications
of the work done by his staff. "My role tends to be strategic,
while my associates are very much operationally involved."
Senior associate Barbara Chandler is an exception. She has an extensive
background in retailing and handles most of her clients on her own.
"So, you're a consultant"
"The toughest thing about starting out," explains John
G. Lauber, head of Lauber & Co. Inc., in Milwaukee, "is
that the world looks at anybody in consulting, and thinks they will
someday come to their senses and get a `real job."' Indeed,
successful part-time CFOs stress that they are not merely looking
for quickie consulting jobs. Although they occasionally take on
short-term projects as a consultant might, they aim to build lasting
businesses as ' financial strategists.
It's not what you'd call an easy sell. Few CEOs jump at the idea
of giving a part-timer a full vote on life-or-death issues. "There's
a lot of need out there, but not a lot of want," comments Brad
Howe. "It's definitely a service that needs to be sold and
constantly resold." It's not enough to convince a company to
hire a part-time CFO, he says. "You've got to convince them
to accept your recommendations." It should come as no surprise
that entrepreneurs often find this a difficult pill to swallow.
When Howe works for "a CEO who isn't sure what a CFO is all
about," he focuses the client's attention on a pressing need
the company has. "You have to carve out a niche and constantly
justify your existence." explains Howe.
Pressing the flesh at local gatherings of bankers, CPAs, and business
executives is critical. Howe and other part-time consultants spend
a significant portion of their time on marketing activities. Howe,
an MBA whose varied career has included a stint as director of external
affairs for Harvard Business School, estimates that about 25 percent
of his time is devoted to marketing. Lauber spends 25 to 30 percent
of his time marketing and running his business.
Robert Thorpe adds that "having a good story to tell opens
doors. People doing this have a reputation in the marketplace. They
come from good companies and can network with venture capitalists.
They know how to get the word out that they're available."
And, he notes, reciprocal back-scratching leads to clients. "It
helps to have great relationships with CPA firms. When a company
doesn't want to pay the loaded billing rates the big firms charge
for financial advice, the CPAs will make a referral to a consulting
CFO. The hope is the CFO will later call them in for assignments,"
says Thorpe.
Small-company dynamics
Spend time talking to roving CFOs, and you'll hear the word "flexible"
again and again. "You may not have your own phone or desk or
computer at a client's office," notes Nancy T. Montgomery,
an MBA and CPA who set up a private practice in Los Altos Hills.
California, early in 1989, after five years as CFO of Applied Biosystems
Inc., in Foster City, California. During Montgomery's tenure, the
provider of instruments and supplies for biotech research leaped
in sales from S18 million to $132 million, a bit too big for Montgomery's
taste.
She left to give her life "some flexibility," including
more time with her two small children. In addition, "the company
had grown large, to 1.100 people worldwide. I found it not as much
fun as when it was smaller. I'm now getting a lot of satisfaction
out of the services I provide," says Montgomery. She also feels
her work represents an efficient buy for clients. "Until a
company reaches about $15 million in sales," she explains,
"it probably doesn't need a full-time CFO. And if a company
doesn't have enough high-level financial projects, it's not getting
its money's worth. New companies have better things to do with their
cash."
Still, working for small companies has its drawbacks. "In a
big company," says Johnston, "$10 million is a small problem.
It's been a long time since I've worried about a $10 million problem.
I admit, this work does sometimes feel small. Besides that, the
constant worry about cash in a small company can be wearing,"
he adds.
Howe knows all about the big-fish-in-a-little-pond syndrome. "Small
companies, especially those that have been established a long time,
have developed ways of doing things, and it's a real challenge to
orchestrate change," he says. "I tell them up front, if
they hire me, they will have to make changes." Problem-ridden
companies are even trickier. "The CEO who doesn't take some
responsibility for the company being in trouble probably is not
flexible enough to make the changes necessary," notes Howe.
He claims he does, in fact, have "the flexibility" to
reject such potential clients.
Frequently, these time-share CFOs hire and train bookkeeping and
accounting personnel. "Our involvement in a company may let
them bring in a good general accountant at $40,000 or a clerk at
$20,000 instead of a CFO at $70,000," says Lauber. Part-time
CFOs also help a company hire their replacement when a full-time
CFO is warranted. Those cases, comments Lauber, are the success
stories. Of course, the time-share CFO has to know to disengage
when a client is walking the plank. "Usually, we know before
the client knows that the company can no longer afford our services,"
says Howe. "When a client doesn't reach financial goals and
has to downsize, we feel it is hard to justify our fees, and we
will downsize our involvement."
