BeansTalk
BeansTalk: Where Expertise Meets Opportunity, Mauldin & Jenkins' podcast, where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience.
BeansTalk
Beyond the Report: CFO Insights for Strategic Growth
In this episode, Robert Stephens breaks down how to turn financial data into an actionable business strategy. This episode explores how to go beyond surface-level reports to uncover insights that drive smarter decisions, stronger forecasting, and long-term growth. Whether you're scaling a startup or leading an established business, this conversation will help you use your numbers as a tool, not just a report card.
Welcome to Beanstalk, M&J's podcast where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience. On today's episode, I'm very excited to be having a returning guest. I previously met with Robert Stevens, who leads our CFO Navigator practice, and there was a lot of really great response and feedback to the episode. So I've asked him to return to the microphone and join me for another episode today. Robert, thank you so much for coming back. Thanks for having me back, Brandon. Now, Robert, I know we went through your intro last time, but just give us a brief reminder of your role at Maldon and Jenkins. Sure.
Speaker 02:Well, I think of myself as a corporate accountant. I spent the first 20 years of my career in corporate America, accountant, manager, controller, CFO. And then the last 15, 16 years has been as the fractional CFO, really taking what I'd learned as a corporate accountant and bringing that from corporate America down to Main Street with more privately held companies, providing some of the same financial insights that big companies have to more Main Street privately held companies.
Speaker 01:And Robert, even kind of going through your bio and your background and history That kind of even leads me to my first question in terms of, you know, when we hear these terms like a bookkeeper, an accountant, a controller, a CFO, you know, will you just help me kind of parse through those? Can we just start by just like diving in to what is the difference between a controller and a CFO at each of those levels?
Speaker 02:That was actually one of the first learnings I had when I started CFO Navigator as my practice. I was having conversations with business owners and trying to explain to them what a I was getting similar replies. Well, I've got one of those. Okay. Well, what do they do for you? Well, they do my payroll. They pay my bills. They reconcile my bank account. Well, that's not a CFO. That's an accountant. So that's when I came up with a concept I call the financial ladder to really help non-financial people understand what it is that we accountants do. We're all the same to them. They don't understand the difference. And I took that for granted in the beginning. So several iterations that literally started on the back of a notepad, I created the visual of a financial ladder. Think about a ladder with all the various rungs, and those rungs are broken into three major sections. Those three sections are really the key activities that accountants perform, counting, getting transactions, data, inputs into a general ledger system. The middle of the ladder is around the controlling the organizing of the process, organizing the chart of accounts, organizing how we're going to do things as an organization when it comes to the accounting. And the top of the ladder is around navigating. That's turning all of that data that goes in at the bottom of the ladder into information and then being able to communicate what it means to the organization. That's where financial leadership is demonstrated, is at the top of the ladder. And on the other side of the those activities are the roles. Back to the bottom of the ladder, the counting part, that's done by accountants, bookkeepers. They're getting the transactions in. The middle of the ladder, the controlling activities, that's where the word controller comes from. That's a controller's role. And at the top of the ladder to navigate is where the CFO role comes in. And I speak about roles because in large organizations, there may be dozens of folks in various sections of the ladder, but the roles are the same regardless of whether you're a Home Depot or a privately held business.
Speaker 01:I really like how you frame that in terms of the difference between roles and activities. It's not so important accountant, controller, bookkeeper, CFO. It's what are you doing for me? What are you actually helping me to accomplish? And I love that, the counting, controlling, navigating, right? So just as a business leader, it makes much more sense in terms of, okay, what kind of role do I need to support me in my functions? Okay, then now that can translate to that role.
Speaker 02:And that's the feedback I've gotten once I've, I made the ladder pretty, had graphic designers help make it pretty, but the message has been the same. And in talking to business leaders, business owners that don't understand accounting, that simple infographic has saved me tons of time in trying to explain what what it is they should expect from a fractional CFO or a fractional controller or an accountant.
Speaker 01:Because that's, you made a comment earlier too about how, you know, someone might say, oh, a fractional CFO, I've got that. But when you actually drill in, it's like, okay, you have somebody who's helping you with accounting and controlling, but not necessarily navigating. So that leads me to just wonder, how do I know when I need help navigating? You know, when do I really need that true CFO as the, like, true role to help me navigate? I think
Speaker 02:of the numbers, accounting, with three perspectives. There's the hindsight, the rearview mirror perspective. That's closing the books, getting the numbers right. That's what every accountant in the world is trained to do, and that's what we do. We close the books. The numbers are good. They're right. But that's rearview mirror. That's already happened last month, last quarter, or last year. You can't do anything about it. The second perspective is what we do. insight. Think of a dashboard. What am I watching right now that's going to help me run this business? It's not rearview mirror. It's right in front of me. It's some of the metrics, some of the KPIs, similar to the dashboard of a car that you're monitoring in real time. And then the third perspective is the foresight, the windshield. That's where the navigator and CFO navigator came from was looking out of the windshield and helping anticipate what's coming down the road. You need all three to drive a car, right? You need the rear view mirror, you need the dashboard and you need the windshield. But the most important of those is the windshield, keeping it on the road, not going off a cliff and just anticipating what's coming down the road.
Speaker 01:Yeah, I definitely hope all the other drivers on the road sharing the road with me aren't just staring in the rear view mirror the whole time, right? I hope they're leveraging that windshield. And that rings true for businesses too. Need to keep those eyes forward and then see where we're going and plan ahead. And that's something I guess, are we still just talking about like financial statements?
Speaker 02:Great question. Short answer is no, because financial statements are a scoreboard or scorecard. It's an end result. Something's already happened and that's the score. You can't change the financial statements without changing the So the dashboard needs to be a combination of financials with the operational drivers. What are the things that the business does that creates the financials, the revenue, the expenses? Without understanding what you can do in the business to make the financials different, you're driving blind. A good example of that is if your accounts receivable are, let's say, high or aged or old, and you want to change that on the financial statements, you don't just change the number. You have to do something in the operations to reduce your receivables that will show up on the financial statements. So the dashboard concept is both financial and operational.
Speaker 01:So the financial statements are an important tool. The history is an important tool. We need to understand what they're telling us, but then it's the analysis and looking forward and leveraging that information, what we do with it. Well, I guess, can you give me some tips on how I can look at that rear view mirror, how I can look at those financial statements to see what they're telling me in order to be able to look through the windshield and direct where I'm going? Like, how do you help me know what are my financial statements telling me?
Speaker 02:I use the analogy of a tree on a hill. If you had a single tree on a hill and I asked you to tell me if that was a tall tree or a short tree, how would you know? The only way you would know is if you had something to compare it to. There were two trees on the hill. Then I could ask, is the tree on the left taller or shorter than the tree on the right? Well, that second tree in financial terms is a budget. Having a budget, and in my definition, a budget is more of an expectation. We expect to sell this much, we expect it to cost this much, and we expect to keep this much in profit. Having that expectation of what we think the business is going to do to then measure the actual results against it, now you can see, are those actual results taller or shorter than our budget? Are we ahead of it? Are we behind it? And based on which way you need to go, now you can proactively make decisions to get you back in line with where you want to go. So to really make use of those financial statements, really study them, like even an expert, the statements themselves aren't enough to tell the whole story. You know, we need something more to kind of tie it to, to ground ourselves on and kind of compare to and then assess. Answer the question, is it good or bad? You can look at the financials and tell you what it says, but is that good or is it bad? You need something to compare it to. And then if it's bad, again, it's not just changing the number in the spreadsheet. Correct. It's the operations. The operations. Now, obviously, when it comes to those financial statements and putting them together, we want to make sure we have good, accurate information for good decision making. And then we want to have the right kind of expertise and partnerships to help us understand that information and make decisions around them. So when it comes to kind of my financial department, And the accountants I have working with me and even internal accountants, like how do I assess what their real capabilities are and how well they're helping me run the business? You know, I guess, how do I kind of assess my current accounting arm?
Speaker 01:Using the ladder again, you know, what role are we assessing? If we're assessing the accountant, detail oriented, timely, attention to detail, you know, making sure that they are good at getting the transactions in. timely and accurately? Is it a controller? Are my books closed timely? Are they closed every month? Does it take five days, 10 days, 30 days? The shorter the amount of time, the more current the information is. And then if you are talking about a CFO, it's what is my CFO helping me anticipate? Do we need to be looking for lines of credit? Do I need to be looking for investors? What do I need to be looking forward and anticipating for?
Speaker 02:So the latter does help a a lot there. So I have an accountant. Look at the ladder. That's the counting rung. Is my accountant helping me effectively count? And then that middle rung, the controlling, does my controller probably help me control? And then the high rung, the CFO helped me navigate. So really kind of evaluating the roles I have in place compared to just that best practice ladder and seeing, do I stack up?
Speaker 01:And I love that word. I should have used it. Best practice words. Yes. Best practice. What do you expect your accountant to do? Close the books timely and accurately. What do you expect your controller to do? Best practices, have good processes, good controls. What do you expect your CFO to do? Bring you, make you pay attention to what you need to pay attention to, not get buried in the weeds. And something I've been wondering too is just, you know, as I'm continuing to mature my practices and having timely reporting and making strategic decisions based off that reporting and having the right support, the rest of my enterprise is also kind of interested in what's going on. on. You know, the accounting data, the financial data is also of interest and impact to a lot of them. So question to you, how much should I be sharing with other employees?
Speaker 02:Two perspectives there. One is your leadership team, your managers, they need enough information to make decisions to lead their area, their business unit or whatever. Then there's the perspective of all the other employees. They're not accountants. They're not going to be accountants. Don't try to make them accountants, but you do need to share some information with them because at the core, what do employees really want to know? Is my company doing good or bad? And am I going to have a job? Right? That's really what they want to know. So I recommend don't try to share all the financials with your employees because they're not going to understand them. Share with them the key pieces, sales growth, are sales increasing or decreasing? Are margins kind of What we're trying to do as a business, big picture numbers to let them know, again, answer that first question. Is the company doing good or bad? And then the second piece, am I going to have a job? Well, if the company's doing good, that question is answered. If the company's not doing so good, then make sure that you're addressing what's going on. Is it a timing difference? What's happening? What's your plan to get back on track? And that's really all the employees need to know.
Speaker 01:So it's the results and some of the interpretations and the kind of the implications of the financial statements, not the actual financial statements being passed around. That's not the priority for us.
Speaker 02:For the masses, yes. Again, back to the business unit leaders, the managers, they need the information they need to make their decisions.
Speaker 01:And kind of staying on them for a moment that the business leaders, how often should I be passing this around to them? Or maybe even sub-part question, how often should I be doing this myself?
Speaker 02:I recommend a monthly rhythm, right? At least a monthly rhythm. It It takes a good month of activity before you can see a different data point. But if you're seeing information on a monthly basis and you know your second tree, you know what you expect to be, now you can start to anticipate, are we going in that right direction? So as a business owner, absolutely be looking at your numbers monthly. Same with your management team. Quarterly, there's four data points. There's four opportunities to do something different. Monthly, there's 12. So seeing the information on a monthly basis gives you 12 opportunities to course correct if need be.
Speaker 01:Well, that's something, you know, that comment you said earlier that rings so true is that you can't change the course of the business in the financial statements themselves, right? It's in the operations. And so at least monthly kind of helps that kind of see where we are, how big is the tree compared to our other baselines? And then do we need to adjust operationally to kind of make sure we're on the right path?
Speaker 02:Exactly.
Speaker 01:And then check again next month. And then check again next month, exactly. Now, I often encounter third parties and external partners being interested in my financial health. We've talked about when it comes to sharing information, what we're going to share with business leaders, what might be of interest to the broader employee base. But how about third parties like our bankers? How much should we be sharing with them? Do I send them the whole financial reporting package? The worst thing you can do
Speaker 02:is surprise your banker. You need to keep your banker informed. Keep them current. They may only want to see financials quarterly. It's not as important for them to monitor it monthly necessarily as it is for the business owner. But whether you provide them monthly or quarterly financials, provide them all of the financials. They need to see the whole picture. The most important thing you can do with your banker is tell the story that the numbers represent. Don't tell a story that the numbers don't represent So by you seeing your numbers every month, you'll understand and you'll know what that story is. I've had clients that I've engaged with initially who have told the bankers one story, and then I've looked at the numbers and it's telling us another story. That's not a good position to be in. So make sure that the story you're telling your banker matches the numbers.
Speaker 01:Yeah, and that's something that doing this every month, you know, reviewing every month is going to help us really understand those numbers, interpret them, formulate our story and strategy and then support even communicating that in a manner that is consistent with what the banker is going to see because they're going to see the hard numbers.
Speaker 02:That's right. And they're going to see if it's bad. And here's a good story. Back during the Great Recession, everybody was tightening the belt. I had a client that wasn't doing very well. They went to their banker and they told them, we're not doing very well. Here's what we're doing. We're furloughing. We're cutting back salaries. These are the things that we're doing to weather this storm they told their vendors that exact same story as well and the employees that same story fast forward two years economy turns around the business starts picking up the bankers their vendors and their employees the trust level went through the roof because they were honest they told them the numbers don't look great here's why and here's what we're doing about it and they've got a lot of trust capital from all three of those interested parties.
Speaker 01:Operational question for you. So now I'm thinking in terms of navigating and I'm using my numbers to make decisions. It's not just something that gets filed away, right? I encounter a question like, do I need a line of credit? I guess, can you give me some advice there? How can I interpret my numbers, think about my operations, envision my financial strategy and answer a question like that? Do I need a line of credit?
Speaker 02:So I said last time when we did this podcast that growth eats cash like a goat eats grass. I love that because people get it. They understand it when they hear it. And that's really about anticipating how much capital you're going to need in the business. And growth is going to take capital. It's going to take cash. So anticipate that. You don't want to go to a bank and ask for a line of credit when things aren't good, when businesses are Even if it's growing, if cash is tight because of the growth, going to the bank when at that point in time, odds are financials aren't going to be in a position where the bankers can help you. So I tell clients the time to get a line is when you don't need a line. When things are good, go to your bank, share the financials, share the story. We're expecting to growth. We're expecting to grow, sorry. And we need some capital to help fund that growth. That's when you go do That's when your financials look clean, they look good, and the bankers can get you approved. Whether you need that line of credit... initially or even ever, at least it's there. It's a sleeping pill. I like to say for the business owner that if things start to take a turn, I've got a line of credit that I can lean on until I can get things back on track.
Speaker 01:Yeah, that's the strategy right now. It's not, when do I need a line of credit? It's just going ahead and is it the right thing to go and have this as a tool in my toolkit for the time I do need it, I already have it. And also it'd be a little easier to obtain it when I don't necessarily need it right now.
Speaker 02:And that also initiates the relationship Right. So whatever they might be able to help you with in the future, once you go through that process, you now have a relationship. You now have you have a banker. You have someone that you can turn to pick up the phone and call them.
Speaker 01:Another question for you. I'm thinking about selling my business. Can a CFO help me with that or even a fractional CFO?
Speaker 02:Short answer is yes. The first question is when do you want to sell your business? The best time to start thinking about selling your business was three years ago. The next best time is today. So if you do have the foresight to know that I'm going to sell in the next three, five, if you have a date in mind, having a fractional CFO help you now will do a couple of things for you at the transaction date. First is it's going to allow you to know your numbers every single month. Know what's good, know what's bad, know what you're shooting for. Most companies are sold on a multiple of EBITDA. What is your EBITDA? That's earnings before interest, taxes, depreciation, amortization for the non-accountants out there. Applying a multiple to that number. So if you watch that number every month, you can do the math in your head five times, 10 times, whatever that is, that number. So a CFO can help you manage to that number, minimizing expenses, increased gross margins and profitability. And by looking at the numbers every month, having good, clean numbers every month, three years down the road, when there is that letter of intent and they do start due diligence, when they say, can you share your financials for the last three years, being able to send 36 monthly packages of financial information and dashboards and analysis is puts your business on another level from the majority of the businesses out there in that you know how to manage the financials of your business.
Speaker 01:And it's on another episode, I had a conversation with Tom Houlihan, the managing director of our transaction advisory practice. And same thing from him, too, in terms of you need to have a plan. You know, like you said, the best time to plan was three years ago, but at least start today because it's just going to pay dividends in terms of when it actually comes time to sell that you've been planning for this. And a lot of the themes are the same that he discussed in terms of they're going to be studying our business. Let's study it first. And they're going to be measuring us a certain way. Let's measure ourselves that way, too, to maximize the value.
Speaker 02:Exactly. And to be able to tell the story, right? The numbers don't lie. So if your story's lying, they'll pick up on that right away. So being able to tell the story, again, that matches with the numbers.
Speaker 01:Now, when it comes to potential buyers, what might they be asking for and expecting from me?
Speaker 02:At least probably three years of your financial statements, this is something to consider, whether to get a review or even an audit. And what is that? What does that do for you outside of having good, clean, monthly financials? Is it gives that independent, outside perspective of, are these numbers good? Are these numbers accurate? Having an audit is like hiring a CPA versus just a bookkeeper. There's a level of education, there's a level of confidence that an audit will provide that someone just looking at the numbers that are provided by management, hmm, how can I rely or how much can I rely on these numbers? An audit will say, yes, we have audited the numbers and you can trust them, we can rely on them. So wallet maybe an expensive venture for a small business. In the end, at transaction time, having three plus years of audited financial statements just puts the business financials at a higher level of creditability than someone who doesn't have an audit.
Speaker 01:So they're not going to necessarily just take my word for it.
Speaker 02:They're not going to take our word for it no matter how clean they look.
Speaker 01:So that all makes sense. I'm thinking about selling my business. I need to plan for it. Start planning a day if I haven't already been playing the last three years and then also study my own numbers to make sure that I can already answer the questions they're going to ask and even have the advantage of starting to manage around those and then also that can tie into valuation too right like I can really add value to the sales price if I manage to the like you gave an example as EBITDA if that's the multiple that's exactly right and then try and have some more reliance on that data just to support their due diligence because they're not going to take my word for it that's right well perfect Robert and Any other advice you give? I'm loving all this advice. I'm going to try and get even more from you while you're here. Anything else you can give to our listeners in terms of just the perspective of a CFO, some things they can keep in mind as business leaders?
Speaker 02:Having a CFO in your business gives you someone who can talk both to the numbers, talk the accounting speak, but also talk the business speak. And that's going to be very important, again, at a transaction, having a conversation with a banker. It's having someone who can be bilingual, who can speak the accounting, but can also speak the business to the business leaders, the bankers, or potential acquirers.
Speaker 01:Well, Robert, thank you so much for coming back and joining me once again I can't promise this will be the last time I ask you to join, but I really appreciate it. And also to our listeners, thank you for listening. If you have follow-up questions about what we covered today or anything else related to business challenges you're navigating, please don't hesitate to reach out to us at Malden and Jenkins.