- Last month’s P&L vs. original forecast, and YTD vs. forecast
- Last month’s P&L vs. prior month – dollars view
- Last month’s P&L vs. prior month – unit economics view (meaning, take your P&L, and divide everything by the unit that’s most important in your business. Could be square feet, available days for appointments, hours sold, hats – you name it)
- Meaningful YoY stats by product line, location, or some other way to give investors an idea of where growth is (or is not coming from)
- Headcount summary – by department, where are we against plan? For many startups, this is where cash either gets burned (hiring too fast) or revenue growth is thwarted (because you can’t find the right head of marketing and while this saves you money in the short run, it means you are not driving top line in the medium-term)
- Rolling forecast vs. original projection – meaning, if I re-forecast the business for the rest of the year (which you should be doing on an almost constant basis), where am I going to end up
- Cash projection
As a CFO, I’m often included on cc:lists. Because I started my career in larger companies, I get why people cc: a lot of people on messages even though I try to limit this myself. And CFO’s often need to know when something is happening: a major contract negotiation, a sales discussion about an important customer, HR matters, you name it. It’s a core part of the job to be the second pair of eyes on something.
One thing I never do, however, is use bcc:
In my experience, it rarely does any good, and almost always causes issues. Example: someone who is bcc’d does a reflexive ‘reply all’ with a salty response instead of just to the person who bcc’d him. I once had a CEO who was bcc’d commit this sin and it was, to put it mildly, a problem.
This is why someone bcc’s me, I immediately ask them not to do it again. If they really want me to see something without having their recipient know it, then just forward it to me after the fact. This happens sometimes in sensitive situations where someone is on a performance plan and whoever put them there wants me to know. Even more reason not to do it via bcc:.
I mention this in a blog post about build stage companies because these tend to be populated by dreamers, which by extension means people who are young and inexperienced. You need some element of youth and inexperience to believe you can change the world. It’s not required but it helps.
So to those of you lucky enough to have these traits going for you, I’ll just say that this is an experiment I can save you the trouble from running. Just say no to bcc:.
I had a TechCXO partner meeting last week. I always learn a lot at these and this session was no exception.
One of my colleagues who is a long-time CFO told us about a rule he had in his companies about people who see payroll data. Which is: you cannot get another job here that doesn’t involve payroll. Once you see how much everyone makes, you either stay in that role, or you have to leave the company.
This seemed extreme when I first heard it. But the more I consider it, the more sense it makes.
In truth, many build stage companies trust this extremely confidential information in the hands of office managers who double as the people who “do” HR, which includes running payroll. Few of these people have bad intentions. Many are inexperienced. And not many things blow up culture faster than exposing this information in the wrong way. Once that toothpaste is out, you cannot put it back in the tube, and it is very difficult to clean up.
So, today I plan to have a reminder conversation with everyone who works with me and handles payroll data. Not because I don’t trust them – mostly because once you’ve seen this information a thousand times, you can lose sight of how sensitive it really is and how important it is to keep it confidential.
On a related note – another build-stage company payroll risk I frequently see is the “single press of a button” problem. Meaning, one person can both enter payroll and submit it without an approval step. I understand why this is tempting in the early stages, and yet: it is a really terrible idea. (The same goes for bill pay and especially wires, by the way).
Systems like TriNet and ADP actually make it hard to do an approval step in their PEO implementations, which I don’t really understand. That said – always put in a second pair of eyes on this. That pair of eyes too is probably bound by the same rule that my partner puts in place: once you see payroll, you can never go back.
A sentence that usually sets off alarm bells for CFO’s is “It’s strategic”. This is usually code for a decision that seems to make no economic sense, but is so important to the business, the company “has to” do it anyway. Examples of this include, but are not limited to (1) an acquisition that the numbers don’t really justify, (2) launching a new product line that’s not correlated with the current one, (3) geographic expansion to a far corner of the world, (4) overpaying for a certain employee, and (5) going all-in on a particular trade show exhibit or booth construction.
Mainly, I have 2 issues with this approach.
First of all, most things that management teams call “strategic” are actually tactical. M&A is a tactic. It should get you into a market segment, a geography, a product category, and be tied to a broader strategy. In theory, your company will have done a build/buy/partner analysis against that strategy and decided that M&A is the tactic that best gets you there. Even in build stage companies, where deals are often opportunistic buys of smaller or faltering competitors, it’s only a tactic. If you’re chasing a deal because it’s “strategic”, something has gone awry already.
Second and maybe more importantly, a major decision that cannot be grounded in numbers of any kind is almost certainly going to go badly. For example: an acquisition that is dilutive on its face should get to being accretive because it helps you raise prices, lower costs, increase sales volume, cut G&A, something that has an economic return. This return should be based an assumption that an investor can see clearly and question, including seeing the sensitivity analysis around it. After all, it is their capital or stock you are proposing to use.
If an acquisition does none of these ‘strategic’ things, and is still dilutive except with heroic assumptions, it doesn’t make sense. Full stop.
Trade shows are trickier. I shiver a bit when I hear that a particularly splashy trade show presence for a build-stage company is necessary because I know from experience that nine times out of 10, it leads to heartache and lost ROI. I shiver even more when I hear that it’s for “brand building”. Brand building is a very expensive game. And, if we’re spending a lot to build our brand at a trade-show, I would advocate that this needs to be part of a broader strategy including customer service, how we package and deliver our products, fit and finish, you name it. You can’t overspend at CES and make these other things go away.
As CFO, you have to keep your eye on what matters. In my experience, something that is truly strategic will show up in the numbers.