This person is at the core of what makes your business successful, however not all financial managers are competent.
As someone who has been an entrepreneur since I was a little kid and started businesses and grown them and bought businesses and sold them, and who teaches entrepreneurship at a major business college, I have always liked the architecture and engineering business because it doesn’t take much to start one of these firms. All you really need is a skill, along with a computer and a client, and voila – you can be in business! That’s great!
As long as your personal overhead isn’t too high, and your client pays their bills, you have the foundation for a business you can build on. But as the years go by, and the business grows with new clients and new people, financial management becomes a bigger and bigger issue. Not all of those clients pay their bills promptly, and cash flow becomes more critical. A line of credit is often necessary and banking relationships become more important to you. The firm becomes valuable, and other employees are added as owners. Leases have to be taken on for equipment and space – maybe a building is even acquired for office space. The accounting system has to be rethought, and information on projects and the business becomes more and more important. Bills have to go out faster and be collected sooner. Overhead increases constantly. Things start to get a lot more complicated.
That’s when you find yourself in need of a competent financial manager – someone who can deal with all of this stuff and make sure you have the capital you need to operate and grow the business. And someone who can take care of all of the business stuff no one else wants to deal with, or has the knowledge to deal with.
The problem is not all financial managers ARE competent. I have worked with a lot of them – really good ones and really bad ones. The bad ones make lots of little mistakes. Their spreadsheets have errors that they don’t see (and they should). They give you too much information and cannot discern what’s most important. They see themselves as reporters of results versus generators of results. That means they are waiting for everyone else to do their job. They don’t know how to work with banks to maximize available credit before it is needed. They don’t understand capitalization and ownership transition and how to raise more capital and finance ownership buybacks. They don’t understand what makes the company more valuable. They don’t understand the tax implications of various decisions. They don’t know how to get landlords to pay for buildouts. They don’t know how important it is to get the owners of the business off any personal guarantees or pledging of other assets they may have for collateral for loans. I could go on here but you probably get the idea.
If I am looking for a top-level financial manager, I am looking for someone who is going to be functioning as a real partner in the business, whether or not they actually become an owner in it. I want someone who is highly engaged and that I will be talking to a lot every day throughout the day – someone with broad-based business knowledge who understands service businesses, cash flow, and working capital really well. I expect accuracy in all things and especially any reporting, because anything less calls into question all of our reporting and jeopardizes our credibility with lenders, investors, and employees. People like this ARE out there. They won’t be the cheapest and they may want to become an owner. Maybe a little grey hair can be valuable, too, for the person in this role. They won’t all be young folks with CPAs and MBAs from Ivy League business schools, either. They could be someone with a bachelor’s degree from a state school who worked their way through college. They have to be highly engaged and involved in everything.
The right financial manager is invaluable. He or she will make your job easier, less stressful, and more fun. So what do you think? Do you have the right person in the job or is it time to make a change? And if you do need to make a change, do you have the courage to confront the problem or are you just going to let it go on? Let me know your thoughts!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.
