Monthly Archives: June 2022

At the Intersection of Finance and Operations

At the Intersection of Finance and Operations  
Navigating the Relationship Between the CFO and COO  

Mindy Barker | Barker Associates

We’ve talked extensively about the relationship between the CFO and CEO—the give and take, the benefits of collaboration, and the impacts of a strong connection between the two. In fact, that relationship is generally the only one anyone talks about in the C-Suite. But what about the CFO’s relationship with the COO? Shouldn’t it be just as important? Is it getting lost in the shuffle? 

Life in the C-Suite has been nothing short of a whirlwind over the last few years. Leadership has had to be agile in navigating the obstacles of shifting economies and markets, while coping with the ramifications of a global pandemic. Adapting to these changes has required those in the C-Suite to ask themselves which practices are still relevant and why. They have examined their own roles within their systems, both individually and collectively, often blurring the lines between them. With a shift in how companies operate and a prioritization of strategic decision-making, the relationship between the CFO and COO is emerging as just as important as the relationship between the CFO and CEO.  

External Changes Bring Internal Cohesion 

A cohesive, collaborative C-suite has always been coveted, but somewhat difficult to achieve. And, once again, it was overwhelmingly centered on the CEO-CFO relationship. The COO was simply an extension of the CEO, carrying out the operations needed for the company to reach its goals. The roles of CFO and COO were aligned, of course, but separated. Simply, the COO was busy managing operations, while the CFO was busy crunching numbers. They were in their own lanes. 

However, the world we live in today is vastly different from the one we lived in just a little over two years ago. Both CFOs and COOs have had to be exceedingly agile since the start of the pandemic. The COO was thrust into an all-hands-on-deck situation, making the operational transition to digital communications and remote work as quickly as possible, all while adhering to the new Covid-19 procedures and regulations. Then, they had to reverse it all, to an extent, as regulations began being lifted. Not to mention this was at the same time as major supply disruptions and a labor shortage due to the Great Resignation.  

While the COO was managing never-before-seen challenges, the CFO had the weight of navigating the company financially through two years on near-constant change and uncertainty and then record inflation. Both roles have been pushed to the limits. But through this strain, it became clear that they are inextricably linked. And when making operational decisions, the C-Suite found that financial considerations were more important than ever.  

A Cohesive Understanding 

CFOs and COOs do not need to be a match made in heaven to generate a positive relationship. Just as with any two people, each will have their strengths and weaknesses. The benefits of a strong relationship will come from the alignment of financial and operational strategies, decisions, and goals. When both parties are equally informed and able to consistently stay aligned, they are better equipped to collaborate, breeding innovation into the company’s processes and systems and developing longer-lasting solutions that maximize benefits for the company overall.  

Greater knowledge of the company’s financial standing and goals will allow the COO to make more data-driven decisions when handling operations. In the same vein, operational knowledge may impact how the CFO allocates large investments or budget cuts. They become more than expenses on a spreadsheet when the CFO understands the strategy and reasoning and was involved in both. So, how can this understanding be implemented in your company? 

Getting Your CFO and COO Aligned  

Cultivating a positive CFO-COO relationship does not have to be an intense process, nor does it have to take an exorbitant amount of time. Much of it is ensuring they are provided with the same information, preferably, at the same time. This can be achieved by:  

  • Having them attend each other’s meetings, allowing them the opportunity to hear team members of the opposite department and bring up their concerns with any proposed ideas or strategies.  
  • Encouraging more one-on-one meetings between them as weekly check-ins where they can discuss strategy and upcoming decisions.  
  • Emphasizing the need for transparency and accountability.  

While the CFO and COO do not need to be best friends (no one in the C-Suite does), they do need to work well together and fully understand each other’s roles and responsibilities. This cohesiveness will pave a much smoother path to a more successful future for the company. 

Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including advising on systems and process updates. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

A Shifting Economy Means Shifting Valuations

A Shifting Economy Means Shifting Valuations 

Mindy Barker | Barker Associates

The economy underwent a huge transformation as the country adjusted to a new way of life according to the unwritten rules of a worldwide pandemic. And just when we thought things might start to settle down, it is shifting again. For companies and investors, one of the most significant of those changes will be the disappearance of the revenue multiple.  

A revenue multiple measures the value of the equity of a business relative to the revenues that it generates. It’s the idea that companies can trade based on revenue and not on profit. Simply, it is a metric used often during times of excess money—times in which we recently experienced. The incredible amounts of money that went through the market over the past few years and the resulting high valuations created more strategies based on revenue growth only.  

In the first quarter of this year, companies with high revenue growth, unique technology or customer list have closed deals based on 5 to 6 times revenue. Most of these companies had minimal infrastructure and/or no earnings. This is how valuations and sales have been going. But times are changing  …  

Today, with all that is happening in the economy, a much-needed shift is occurring in trading. This shift is taking us from a prioritization of revenue to a prioritization of profit. The result? Creating a dramatic drop in value for thousands of companies throughout the country.  

Is the Past Repeating Itself? 

The current changes in the economy are not unlike the events of the Dotcom Boom that occurred in the late 1990s. During that time, the popularization of the internet led to a massive swell in the stock prices of technology companies. In 2000, the bubble burst (as it generally does) and certain technology companies saw stock prices plummet before their eyes, causing several to close their doors permanently.  

The Dotcom Boom had a variety of causes. One of them was obviously the popularization of the internet, but there were several other external factors that created the intense drop in capital. To begin, the years prior to the burst saw record-low interest rates, adding to the public’s ability to spend. Once the utility of the internet was realized, investors rushed to the stock market, eager to invest in the new technology.  

There was also a sense of extreme pride in helping these companies cultivate the future. And with low interest rates, investors invested millions in startups with no track record and, sometimes, not even a business plan. Right or wrong, these startups somehow made it to the stock market where the public was able to invest in them. And it made sense that what followed was the increased valuation of many tech companies. But when it all burst and those companies went under, thousands of people who believed in the future without worrying enough about the present lost everything.  

The Economy Today 

What we are experiencing today is eerily similar to the Dotcom Boom, but there are some key differences. Leading up to the pandemic, interest rates were also very low, and money was being poured into the economy in the form of stimulus checks and PPP. People were spending their days at home, and not spending their money on vacations or expensive dinners or concerts. And for those who were fortunate enough to keep their jobs during the pandemic, it was time to invest. Yet, other factors were brewing that would impact it all.  

We saw the Great Resignation, where millions of American workers voluntarily left their jobs in search of better pay and working conditions, creating a labor shortage we haven’t seen in decades. Now, thousands of companies across the country desperately in need of labor are paying more to get new employees in and to keep the ones they have. This trend is ongoing and is unlike anything the U.S. has ever seen. We have also seen supply chain issues like never before—delays and empty store shelves, leading to skyrocketing prices for what is available.  

With all types of companies feeling the pain of the labor shortage and the supply chain challenges, the economy has been affected at nearly every level. After all, less labor means less revenue and less revenue means less profit, putting many companies at risk in future valuations. Additionally, as interest rates inch upward in the government’s attempt to curb the record inflation, consumers are becoming more conservative with their money. 

Shifting to Earnings and Profit 

While this shift in the investment world will undoubtedly cause increased inflation as companies raise prices to make profit, it’s a shift that must occur. We must focus on earnings and profit rather than revenue. With decreased spending and no solution for the labor shortage in sight, CFOs are challenged with making the numbers add up and are finding it increasingly difficult to pay the bills. And if they do not have the books and records in order to know what the profit is, it will be incredibly difficult to manage through this valuation shift.  

Understanding what causes these fluctuations and shifts, and comparing them to instances of the past can be beneficial to navigating economic changes in the future. Thinking about how your company is able to address the issues at hand may be the key to avoiding going under as the market experiences yet another crucial shift.  

Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including advising on systems and process updates. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

Is it Time for a System Update?

Is it Time for a System Update? 
Advancing Technology is Requiring Business Owners to Consider Options 

Mindy Barker | Barker Associates

So much of business, and life, has changed. Much of that change has to do with reacting to the pandemic and its resulting disruption to normal business practices. Still other changes have been brought about by our own internal shifting needs and wants. And nearly all changes have some advancing technology component attached to them. In fact, technology’s growing role in businesses of all sizes is requiring us all to reconsider more advanced systems, software, and processes.  

The question is—How many businesses have truly kept up with this transformation? Are they ready for yet another change or are they using old processes with an equally old thought process—if it’s not broke, don’t fix it? If it’s the latter, I would argue that when those processes are truly aged-out, they are, in fact, broken.  

The Challenges of Using Outdated Systems 

It’s understandable—change makes most people uncomfortable, especially when it comes with a perceived hefty price tag attached. Yet, what they often don’t consider are the costs associated with doing nothing. In this case, the costs associated with continued reliance on outdated systems and processes.  

Challenges with the continued use of outdated systems are plentiful. A few of the most common pain points include lack of information accessibility, timeliness, quality, delayed reporting, noncompliance, and missing out on recruiting opportunities because the company appears outdated and behind the times. And the “band-aid” solution of getting a new system, while attempting to transfer old processes to it is also problematic. In those instances, the new system is not able to function as it should, resulting in even more costly inefficiencies. 

The Importance of Due Diligence 

Deciding when the “right time” is to update a system has always been challenging, but probably never quite as challenging as it is today. With so many technological advances thrown at us at once (and across nearly every department), it’s no wonder some are confused about which way to turn. But the decision starts, as all should, with proper due diligence.  

Due diligence helps us to avoid making a quick (and often costly) decision in a time of need. With careful consideration, we may find that we don’t need an entire new system after all, but just some adjustments to what we currently have. But we won’t know if we don’t take the time to do our homework first. Some improvements and enhancements can be done without any purchases whatsoever. It all depends on what is currently in place and the goals and objectives involved. Asking the following questions is a good start: 

  • Where can improvements be made?  
  • What else is out there?  
  • What are our competitors doing? 
  • Is there anything that can be done to improve our current systems and processes? 
  • What are the benefits of the new system?  
  • Are we able to devote the time and resources required to implement this new system properly? 

This last question is extremely important. As with any update, it’s not only about the system, but also the process to use that system. You can have the newest, most up-to-date technology, but if the team was not properly trained and a new standard operating procedure not created, the new system will not produce the results it was expected to. Additionally, the team may enter data incorrectly, resulting in error-prone reports and potentially costing the company even more money. For example, if it relates to a compliance issue, the company could incur penalties and interest as a result of these inaccuracies. It’s crucial that everything pertaining to that system be updated at the same time in order to reap the benefits. 

Currently, some of the most common considerations when deciding whether to update to a new system involve automation and cloud software. 

Automation 

Too many business leaders spend too much time completing mundane, everyday tasks that are repetitive and simple. Not only is this inefficient, but it is also not cost effective. Automation is the single best way to solve this problem. It allows employees to complete manual tasks at the click of a mouse, freeing up their time to work on more important matters. 

Cloud Software 

We saw firsthand during the pandemic how connectivity and access to information were keys to keeping our doors open. In most instances, this can only be achieved with cloud-based technology. With more people continuing to work remotely, at least some component of this may become more of a necessity than a luxury going forward. 

With all of the changes we’re experiencing, businesses should review their current processes or have a third party come in to get a professional, outside perspective prior to making any decisions regarding updates and/or purchasing new systems. The costs of keeping the current system should be compared to the costs of purchasing a new one, considering not just the monetary value, but other benefits, such as better security, increased efficiency, increased compatibility, more satisfied teams and customers, and reduced costs. If the decision is made to purchase a new system, a strategic plan for implementation should be created, including new processes and training, so that the business propels forward uninterrupted.  

Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including advising on systems and process updates. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

Is Your Idea Worth Investing In?

Mindy Barker | Barker Associates

Every year, entrepreneurs spend countless hours planning and preparing for the perfect investor pitch. They research, practice, and pick apart every piece of their idea and/or business to find success in the form of an investment to propel them to the next level. However, all of this time spent preparing and practicing can be futile if there is not a strong foundation first; namely, “Is the business built on an idea worth investing in?”  

This is not always an easy question to answer with so much personal time, attention, and energy focused on developing that idea. Saying there is a little bias may be a rather large understatement. That’s where gaining further perspective allows you to assess whether it is, in fact, a “good idea” or not. And even if it is a good idea, exactly how good is it?  

To decide, you have to consider not only if it is a “good idea,” but if it is a profitable one—two very different matters. Profitability depends on many internal and external factors, only one of which is how good the actual idea is in the first place. And it can only truly be evaluated by looking at it from different perspectives. Understanding these factors from various perspectives, and how they influence profitability, will give your idea a stronger leg to stand on when under the certain scrutiny you’ll face in that investor meeting.  

Seven Questions and Perspectives to Evaluate Your Idea … Before the Pitch 

  1. What do you think makes your idea unique? 

Think about you as your own customer, not as an inventor and/or entrepreneur who spent months or years perfecting a product or service. Consider what specifically makes your idea unique and interesting. Why would you choose what you offer? Once you’ve identified your value proposition, use that as a baseline when considering other perspectives.

  1. What do others think make your idea unique? 

Now that you have your baseline, start asking others the same questions—family members, friends, strangers, fellow entrepreneurs. Record their answers and analyze where they fall according to your baseline. Look for any patterns or weaknesses and think about how to address them. Take the time to consider the results of your research and how they affect your baseline. 

  1. What is your competition doing? 

Once you have a better understanding of your customer perspective, take a thorough look at your competition. What are they doing differently? What are they doing the same? Similarly, look at trends in the market and your specific industry. Where does your business fit in? What pain point does it solve that your competitors are missing? What are your differentiators?

  1. If you’re not already in the market, how will your competition react when you enter it? 

Getting your idea to market is one thing, but keeping it there is entirely another. Consider the impact your idea could have on the market and how competitors might respond. This is an extremely valuable perspective to have when preparing for a pitch.

  1. What will critics say? 

This is often overlooked. Why? Because it’s unpleasant! We don’t want to hear the bad feedback. It’s so much better to relish in the compliments. But this is crucial. Think about the perspective of those who have negative opinions of your idea or business. Is there any validity to them? If so, how can they be addressed? Taking in the thoughts of critics is incredibly important for ensuring you are not missing the mark. If you don’t address them, your investors will.

  1. Do the numbers make sense? 

Numbers don’t lie. There is no gray area. Either your business can be profitable or not. If the numbers aren’t there, there is no hiding it. Consider the following:  

  • Are there holes in your research?  
  • Was there an error in the data?  
  • Is there any way to lower costs without affecting quality? 
  • Is there any way to increase distribution? 

Numbers are a massive factor in any investment. Ensuring yours make sense will go a long way with investors.

  1. How much sentiment is attached to your idea? 

Now that you’ve examined the perspectives of others, it’s time to reexamine your own perspective again, especially its weaknesses. One of the biggest mistakes someone can make when pitching an idea is getting too sentimental. Don’t get me wrong—you want to tell your story. It makes the most impact. But emotions and sentiment will never take the place of profitability. And if you are too sentimental, it may appear that you are trying to cover something up. It’s crucial that you are able to separate your sentimentality to the project from your logical stance on the viability of it as a profitable enterprise.

Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow, including helping to prepare for that ever-important pitch. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.