Month: March 2012

Not always as advertised: Some investments come with unexpected costs

Financial planners and CFOs who do not look far enough down the road could place their businesses in dire financial straits.

Any time a business invests in something – a product, a service or even an employee – there will always be an expected cost attached. Business decision makers who stay within the parameters of their budgets understand that doing so requires careful planning and, in many instances, a consideration of unexpected related costs.

Inc.com contributor Mark Davis wrote last week that the “snowballing” effect of purchases can lead actual costs to greatly outpace the advertised or expected price of a product or service.

“While getting a new TV for the conference room seems to balance in your checkbook, you must also factor in the cost of installation, the complementary speakers, monthly cable fees and maintenance,” Davis, CEO of social media startup Kohort, writes. “The full cost of ownership might not fit into a bootstrapper’s budget.”

Financial planners and CFOs who do not look far enough down the road could place their businesses in dire financial straits. Once committed to a product, service or employee, the organization may already have reached a level of commitment that makes it impossible to transition away – the initiative either needs to be scrapped entirely, thereby beginning the process again, or additional resources could be poured into the initiative, which could further sap the company of vital funds that could be better used elsewhere.

When headhunting CFOs and recruiting accountants, a business should seek finance professionals who are able to produce meaningful work related to a company’s business dealings, while also looking to the future as business plans and expected expenses are considered. Finding business professionals with these dual skill sets could be challenging, but experienced finance recruiters can expedite this process with care and precision.

Businesses falter when cash flow is restricted

Receipt of a payment is more critical than the money lost through a reduced cost.

Lifeblood, oxygen – experts use a variety of terms to stress the importance of cash flow to the future success of a business. If an organization does not ensure that it is receiving payment in an efficient manner, its development could be significantly curtailed or even stalled entirely.

For this reason, experts advise small business owners to take a myriad of steps to ensure uneven cash flow does not undermine a company. For longer term projects, organizations may want to request that customers make milestone payments throughout the process, instead of waiting until the conclusion of the service to receive payment. Having that cash-on-hand will benefit a business significantly.

For one-time purchases or short-term sales, experts recommend that organizations encourage their customers to pay up-front and quickly for products or services. This may force a business to provide customers with an incentive to pay early, perhaps in the form of a discount, but receipt of that payment is more critical than the money lost through a reduced cost.

“Once you give up your final service or product to the customer without payment, you ultimately are giving up your leverage. Don’t lose your leverage,” author Scott Gerber said in a video for Inc.com. “Make sure that you find ways to retain as much ownership over your final work product until the payment goes through.”

Once an organization solves the problem of uneven cash flow, it should expect funds to roll in on a continual basis. While this surely is to a company’s advantage, it could also overwhelm their finance department and produce accounting errors if financial professionals are unprepared for such an influx of information and money.

To ensure that financial departments operate smoothly, companies may rely on corporate and finance recruiters to find real quality applicants for these positions, from CFO down to accounting staff members.

MBA or CPA: Are businesses increasingly preferring one over the other?

Should more companies slash accounting jobs, organizations will need to replace these individuals with financial professionals who may be better equipped to think strategically.

The finance field provides an abundance of opportunities to those just getting started with their careers, many of whom face the question of whether a CPA, MBA or both would be most critical toward determining their professional future.

Generally, a CPA is required for any job that requires in-depth analysis of financial statements, from a financial analyst right up to a CFO or controller. An MBA is more beneficial for those interested in investment banking and venture capital, along with any job that requires long-term financial planning.

According to an article late last year on CFO.com, many businesses are increasingly hiring financial professionals that have an eye toward strategic planning and big picture thinking – how investments relate to the company in general.

“The ‘cat’s meow’…is a CPA who then gets an MBA,” according to the article. “Such a person gets grounded in the discipline needed to implement and monitor financial controls, policies, and procedures, and then adds the ability to advise on ‘grayer’ areas such as what projects should be funded, whether something should be acquired, built, or bought and whether products or services should be extended or eliminated.”

Should more companies slash accounting jobs, organizations will need to replace these individuals with financial professionals who may be better equipped to think strategically about the future of a company.

When building financial teams, CFOs should be sure they are surrounded with high-quality subordinates who can help assess past performance while also designing and refining a long-term financial vision. To find these individuals, businesses may consider hiring finance executives search firms with experiencing filling jobs in finance. Finance recruiters can help reduce the workload for CFOs, whose time is often consumed responding to numerous other stakeholders.

Companies should consider “return on compensation” when determining CFO pay

In 2011, base salaries only increased 3 percent and bonuses remained relatively unchanged.

As tempting as it may be for company decision makers to throw an exorbitant compensation package toward executive candidates, these businesses may need to temper their expectations and first consider average executive compensation rates.

A study by an executive compensation consultant recently determined that executive compensation increased slightly in 2011, led by a 9 percent increase in long-term incentives. Meanwhile, base salaries only increased 3 percent and bonuses remained relatively unchanged.

The study could have significant ramifications for companies that are about to start searching for great CFOs and other senior executives, but are unsure of how to pay these business leaders for their services.

When determining how much to pay their executives, along with the type of compensation, business decision makers should consider the return on compensation (ROC) of their executives and always ensure that they are being paid a competitive compensation package.

“An organization’s compensation expense is an investment in talent, which requires a return, just like any other investment,” according to CFO.com. “Even though ROC is harder to measure than the return on traditional capital investments, prioritized investments in talent produce better returns than homogeneous or entitlement approaches.”

An executive whose compensation is tied closely to company performance, especially over an extended period of time, has a robust incentive to ensure that his or her long-term vision is formulated properly. Organizational stability, especially among those who hold senior executive positions, can be the difference between a company thriving by building on its prior successes and failing to emerge as an industry leader.

In order to fill executive jobs, particularly senior jobs in finance, businesses should find an organization that has financial professional search experience. These corporate recruiters can help businesses find senior executives and advise them as to proper compensation practices needed to attract and retain these business leaders.

Weathering the storm: Companies turn to CFOs in crisis moments

The long-term vision that CFOs must employ is a trait that ultimately helps those financial officers who are promoted to CEO.

The recent resignation of Miramax CEO Mike Lang is the latest in a string of sudden CEO departures that led to companies promoting their CFO to fill in on a temporary basis. This is a common practice among companies that do not have an executive succession plan in place.

Arguably, the most recent high-profile instance of a CFO stepping in as CEO occurred last September when Yahoo unceremoniously fired CEO Carol Bartz over the phone. Yahoo’s corporate board then promoted CFO Tim Morse to interim CEO and provided him with an “executive leadership council” to assist in the day-to-day operations of the company.

The long-term vision that CFOs must employ is a trait that ultimately helps those financial officers who are promoted to CEO, but they may lack the requisite knowledge of business operations to be successful for an extended period of time. With this in mind, it may not be surprising that studies have shown only 20 percent of current U.S. CEOs previously served as CFOs.

Still, on an interim basis, many CFOs have the skill sets to fill the corner office role and restore stability where it may have been lacking, but in general, directors of operation, vice presidents and COOs are best equipped to handle long-term CEO responsibilities. Even if former CFOs are passed by when professional recruiters conduct a formal CEO search, their future prospects are still bright.

Those seeking CFO jobs may need to be prepared to step in to serve a company as CEO if necessary. Meanwhile, companies searching for great CEOs may request the assistance of a corporate recruiter that is aware of the unique traits and experience needed to provide a business with rigorous and effective C-level leadership.