Are You Really Doing Your Job?

This is not a basketball story, but this week’s NCAA men’s title game got me thinking about performance measures – mine!

My money wasn’t on either Connecticut or Kentucky on Monday night, but a UConn victory would allow one of its backers to leap-frog me in our 85-person pool, costing me second-place money. So I was rooting for the five freshmen of Kentucky.

They had their chances, pulling within a point or two of Connecticut several times in the second half. But they choked on free throws, missing 11 of their 24, while UConn hit 10 of 10, a significant difference in a tight game. In particular, UConn’s experienced tandem of Shabazz Napier and Ryan Boatright hit 6 for 6 with the game on the line.

“That,” I thought to myself, “comes from all the additional practice that they’ve had since their freshman years.” Talented though those Kentucky frosh might have been, it takes discipline – and practice, practice, practice – until making free throws becomes automatic. Much of the discipline, in turn, comes from good coaching over an extended period of time. The Kentucky kids just aren’t there yet.

I, on the other hand, have been there. Not in a basketball sense (truth to tell, I never got much above the 50% mark in free throws), but in having the discipline to achieve the metrics I establish for myself and my clients, things like:

  • Ensuring that monthly statements are completed within 20 days;
  • Keeping accounts receivable under 45 days average days sales outstanding (DSO);
  • Developing and getting buy-in on an annual budget before December 31; and
  • Achieving the targeted bottom line or explaining fully the factors that caused the variance.

During the past several months, in the process of establishing financial systems and accounting protocols for a new company created by the buy-out and merger of two established companies, I lost track of an important fact: my client, in developing funding for the entity, had made representations to his bank funding sources about future revenues and profitability.

That was six months ago. Three months ago, we provided a preliminary report to the banks for the December 31 “stub” year-end which explained our variances from plan. We indicated then that some of the entries on the financial statements, including the bottom line, were our best-guess estimates but were contingent on the CPA’s yet-to-be-determined treatment of several deal-related provisions.

All well and good.

This past week, we reached consensus on the accounting issues. This, and some other late-arriving adjustments to the year-end numbers resulted in a bottom line variance in profitability of about three percentage points versus what we had estimated at the end of January. From the earlier conversation with the banks, I felt that this difference was within the range of expectation that we had established and that an explanation of the relatively small variance was unnecessary.

I should have known better. Really.

In fact, I did know better. But I needed a reminder.

My client, the owner/senior executive of this joint venture, was and is a successful private equity investor. He knows, as I do, that you build credibility in business (and, of course, in most other walks of life) by doing what you say you’re going to do. It’s especially important to establish credibility with funding sources right from the start by putting a stake in the ground in the form of your accurate current financial statements, charting your path with appropriate milestones from there, and measuring and reporting on your progress periodically against those commitments.

The more that you can demonstrate to your various constituencies that you have a firm hand on what’s happening and where you’re going in your business, the greater the credibility that you will have with them, whether they be customers, employees, investors, or lenders. For the last two, the foundation is financial reporting, formed by:

  • Realistic budgets and cash requirements reports;
  • Timely and accurate financial statements;
  • Thorough variance analysis (vs. budget and last year);
  • Periodic forecasts between budget cycles; and
  • Regular communication.

My client’s banks expect this, the more so given the financial pedigree of my client.

So simply being within three percentage points is not sufficient. We need to explain the difference as part of the process of increasing their comfort level with our management.

My client is committed: he continually asks penetrating questions that derive from each department’s reported metrics. That’s his job. My job is to lead the finance team and the accounting staff in producing the answers before he has questions.

At this stage of my life, it’s a lot easier than making free throws.