An Afterthought Waiting to Happen

“A three-hour meeting with five senior managers plus the outside accountant, and you hardly said a word,” I pointed out to Jonathan, the Director of Finance. We had just finished the preliminary review of the June 30th fiscal year and were discussing the implications for FY2010.

“Well, most of the key issues were raised and covered by other people in the meeting, and there were very few specific questions about the numbers,” he replied. “I really figured that my role was to absorb the discussion so that I could incorporate it into final changes to the FY10 budget.”

In conversations with me, Jonathan has never been short of good ideas about either the tactics or the strategy of running this steadily-growing manufacturing company. He is perceptive about his fellow managers, and his long tenure with the company provides him with plenty of experience to contribute to meetings. But he seldom speaks up, except in response to a specific question, which usually involves “the numbers.”

Jonathan’s boss, the President, realized that the company lacked senior financial leadership as she routinely completed another budget review herself. She retained me not only to free her time, but also to provide the management team with a better understanding of the financial results and their implications for strategic planning. As it turned out, she was really seeking leadership in finance equivalent to her company’s seniority in the other functional areas.

Like many other small business controllers, Jonathan has the small business financial skill set: he has his fingers on the pulse, has a facility with the numbers that allows him to anticipate what’s likely to happen both operationally and financially, and he has a solid base in accounting.

But – and it’s a big but – Jonathan is like a lot of others in that he doesn’t communicate effectively from that base. He can’t sell his very good ideas. He’s just not a persuasive kind of guy. As a result, he’s reluctant to venture very far from his base. Revenue forecasting becomes an exercise in achieving 100% staff input rather than spotting trends. Capital budgeting is about capital limitations. An incentive comp plan gets delayed by contractual language. He takes refuge in the details.

Jonathan’s boss needs full-time leadership in the financial area to reinforce the senior direction that I provide part-time. He has grown professionally from Staff Accountant to Finance Director by being a good custodian of the numbers and keeping track of the details. With the President’s encouragement, Jonathan will either step up to senior management, or he will have to look elsewhere To avoid being out, he’ll have to be out front –

  1. By offering his input on strategic issues in management meetings;
  1. By assuming the lead and being accountable for the results in cross-functional development teams;
  1. By taking over the financial reporting to the Board and the outside investors, relieving me and the President in this function;
  1. By expanding his annual budget into a long-range plan, soliciting input from each of the other senior managers, and presenting his product to the management team and the Board; and
  1. By renegotiating the bank loan – packaging his financial plan, initiating contact with two or three other banks, and ultimately improving on the current relationship.

It’s all too easy for accounting and finance people to be pigeon-holed by their work history and never be encouraged to expand their roles, particularly if they have come up through the ranks in the company. With good mentoring and access to the right opportunities within the company – including forward planning – the afterthought may turn out to be the sought-after. And that’s not a bad problem to have.

Alligator Bites

“Forecasting, never an activity companies felt particularly confident about, has now become nearly impossible. Processes that once resulted in mildly imperfect visions of the future now produce wildly imperfect ones. ‘The last 8 to 12 months have created a strong realization among many corporate leaders that whatever planning they may have been doing, they didn’t factor in the possibility of the future being dramatically different from the past,’ says Andrew Blau, co-president of strategy consultancy Global Business Network.

“…To cope, many companies are running the numbers more frequently, with an eye toward capturing different versions of the future. ‘Customers were doing reforecasts quarterly. Now they’re doing them monthly, and augmenting them with a lot of ‘what-if’ analyses,’ says Ric Ratkowski, vice president of product marketing for Host Analytics, a budgeting- and-planning software provider. A survey by CFO Research Services backs that up; about 80% of finance executives say their departments are spending more time on forecasting revenues and other financial metrics in response to the economic uncertainty, with an equivalent number amping up scenario planning in an effort to gauge the impact of alternate realities.”

– From CFO magazine, July/August, 2009

Draining the Swamp

“While the economic downturn prompted U.S. companies in 2009 to grant employees the lowest base salary increases in 33 years, funding for variable pay was at an all-time high…

“Hewitt’s survey of 1,156 large organizations reveals that base salary increases dropped below 3 percent for the first time since Hewitt started tracking the data in 1976. Base salary increases for salaried exempt employees in 2009 were just 1.8 percent and are expected to inch up to 2.7 percent in 2010.

“Executive employees are projected to receive increases of 2.6 percent in 2010 compared to 1.4 percent in 2009. Salaried non-exempt employees can also expect an increase of 2.6 percent in 2010, up from 1.9 percent in 2009. Salary increases for nonunion hourly and union workers are projected to be 2.7 percent in 2010, compared to 2.0 percent and 2.2 percent respectively in 2009.

“The challenging economy also compelled nearly half (48 percent) of companies to freeze salaries in 2009, up considerably from 2 percent in 2008. In 2010, 13 percent of companies anticipate salary freezes.”

Hewitt Associates , released August 11, 2009