DO YOU NEED A CFO?

1. DO YOU NEED A CFO? Sponsored by: Presented by Judith Miller, J. Miller & Company

2. I - INTRODUCTIONS • Who am I? • In construction since 1985 • 2nd Master Builder national trainer • Written “Benchmark” column for Remodeling Magazine since 2005 • Facilitator for Business Networks for 6 years, including 3 restoration peer groups • Facilitator for Remodelers Advantage since 2002 • Speaker at National construction conferences • Author of 2 QuickBooks manuals for construction – published • Author of RSI – The Remodelers Success Index – in final edit • My goals for this hour: • To clarify the considerations involved in hiring a CFO • To identify the primary & secondary benefits of such a hire • To define a good hiring/training/evaluation process

3. BUT FIRST, WHERE IS YOUR COMPANY? • 5 STAGES & 2 PHASES - no matter what you make or how every company goes through (up to) 5 predictable stages of growth: • Stage 1: owner does it all • Stage 2: owner begins to delegate • Stage 3: owner delegates everything except sales • Stage 4: owner delegates everything • Stage 5: owner handles strategy

4. 5 STAGES – continued • Each stage consists of 2 phases: • Evolutionary - systems are developed to manage effectively at that stage • Revolutionary - systems become insufficient for current level of activity • This is important because the complexity of the systems you develop increases with each stage Revolutionary Evolutionary

5. STAGE 3: the sweet spot! • Owners of mature Stage 3 companies ONLY sell, maybe estimate • All other company functions are successfully delegated to ‘right’ employees with the ‘right’ skills & attitudes & trained using company developed standard systems • Owner then manages customer & employee relations, maintaining high satisfaction in each • Owner, & company, can enjoy significant profits & success OWNER–only Sells/Estimates F I N A N C E A D M I N M A R K E T & S E L L P R O D U C T I O N R E S O U R C E S L E A D E R S H I P F O U N D A T I O N = S Y S T E M S

6. STAGE 4: complexity increases • Owners of mature Stage 4 companies ONLY coach, train & mentor the departmental heads • The department heads then manage, hire, train & motivate their reports • A successful sales force manages customer relations, maintaining high satisfaction • A successful Board of Directors manages company culture, expectations & profits through department heads. F O U N D A T I O N = S Y S T E M S

7. PARETO’S PRINCIPLE - • Also known as “the 80 / 20 rule” or “the rule of the vital few” states that 80% of the value is derived from 20% of the input • Define the 20% in every department & establish standardized systems to produce predictable results over time • Manage the rest by exception • For example: if you use labor/materials/subs/equipment/other to produce the work, which 20% produces the greatest risk?

8. II - THE HEART OF THE MATTER • Financial literacy, the ability to make informed personal & business decisions based on financial information, is vital to both personal & business success • However, it is the rare entrepreneur who started a restoration company because they loved finance • Hiring & training financial managers appropriate to the company stage of growth is vital to long term success

9. THE BIG ?-DO YOU NEED A CFO? • Is your banker (or are you) confused by your financial reports? • Can you define profitability by product line, sales person, lead or line item of work? • Are sales up but cash flow down? • Are you getting the numbers you need from your accounting department? • Do you need a new accounting or estimating system but don’t know how to start?

10. 5 FINANCIAL POSITIONS - • There are 5 primary types of financial positions: • DATA ENTRY CLERK – enters data into a pre-defined system; typically has 2 years of experience & a working vocabulary of the industry. Works under immediate supervision & does not require exercising independent judgment. Salary range: $24K - $30K [source: Salary.com] • FULL CHARGE BOOKKEEPER – maintains records, balances ledgers & prepares reports. Typically has associate degree & >5 years experience in the industry. Relies on experience & judgment to accomplish goals. Works under general supervision. Salary range: $33K - $43 K • ACCOUNTANT – prepares profit/loss, balance sheet & other financial reports; analyzes costs & trends. Typically has Bachelor’s Degree > 10 years experience in the industry. Works under general supervision. Salary range: $40K-$49K

11. & FINALLY, A REAL CFO - • CHIEF FINANCIAL OFFICER – responsible for directing entire organization’s financial policies; oversees all financial functions including accounting, budgeting, trend analysis, asset protection, statistical data reliability & reporting. Typically has Bachelor’s Degree, often a CPA &/or MBA, & over 15 years experience in the industry. Enjoys a wide degree of latitude & is expected to act creatively to bring the financial performance of the company to its optimum levels. Salary range: $250K - $400K - WOW!

12. WAIT THERE’S MORE - If $250,000 to $400,000 sounds like a lot of money (and at 40% gross profit margin you’d need to sell an additional $812,500 to cover the salary alone before burden) – CONSIDER a ….. • SENIOR ACCOUNTANT – prepares all financial reports; also analyzes trends to predict future revenues & expenses; reports company finances to management & suggests strategies. Bachelor’s Degree with > 8 years experience in the industry. Reports to management & enjoys a great detail of latitude. $57K - $72K

13. DO YOU NEED A CFO ? - • You probably don’t need a CFO but might well need a Senior Accountant • This is important: the ability to clearly define the position, write a good job description & develop clear expectations will produce better results. • Next, let’s answer the vital questions: why/when/who & how?

14. WHEN? • When the degree of financial complexity & amount of data flowing through the system requires greater control: • Stage 1 – the owner can do it all • Stage 2 – data entry clerk • Stage 3 – full charge bookkeeper with the owner reviewing all reporting & handling strategic financial issues • Stage 4 – senior accountant • Stage 5 – senior accountant OR CFO

15. WHY? • Ask yourself a few questions? • Has the economic landscape changed, for better or for worse, in the last 2 years? • How much time do I spend wondering if my financial & job cost reports are correct? • Do I use more than 5 spreadsheets to manage the company or jobs? • What’s the trend for profitability for the next 3 years? • Does the company intend to grow? • How much cash do I need to grow double my business? • Which component of my business is most profitable? Which is least? • Do I want to sell or transfer ownership?

16. BECAUSE - • A seasoned Senior Accountant can: • Develop financial controls that work; • Create & update business plans & budgets; • Write processes and procedures for his/her position & others in the department; • Develop key metrics & dashboards; • Manage cash – both receivables, payables and lines of credit; • Analyze risk management strategies & suggest methods for mitigating the most dangerous; • And last but not least: protect one of the company’s most vital assets – CASH! • “An accountant can tell you something’s wrong – a Senior Accountant or CFO can tell you how to fix it.”

17. WHO? • Such a sensitive position requires concerted efforts to define the personal qualities of the right applicant as well as the job description • Personality types play a big role: • DISC testing defines 4 personal behavioral styles & anticipates how each style ‘blends’ with others.

18. WHO INDEED - • D = dominant: these people want to be in control. Many entrepreneurs are high D personalities. • I = influencing: these people want to be liked. Many successful sales people are high I. • S = steady: these people want to take care of others. Many good teachers are high S. • C = compliant: these people want to be right. Good accountants are high C. • Therefore, the perfect Senior Accountant would be high C; a bit of D would assure that the work begun was finished.

19. WHO INDEED, redeux- • Company culture and personality fit: • The best applicant with the best skills, properly vetted, tested and interviewed will FAIL if the company culture exhibits signs of dysfunction. • Read Patrick Lencioni’s “The FIVE Dysfunctions of a Team” to see if your team exhibits any of the 5 problematic dysfunctions: • Absence of trust • Fear of conflict • Lack of commitment • Avoidance of accountability • Inattention to results.

20. HOW? • 5 steps to the right hire: • Define the job description as well as the personality characteristics • Write a good ad & place it appropriately • Script the interview to be sure you’re asking all the important questions • Develop a system to choose the best from among all candidates • Set up an effective on-boarding & training process

21. STEP #1 - • Define the job description: • Position title • Reports to • Primary accountabilities: • Management • Transaction control • Reporting • Compliance • Qualifications • Personal attributes • Salary & benefit range

22. STEP #2 - • Write a good ad: • Job Summary: this position is responsible for general bookkeeping, applying accounting principles and procedures to analyze financial information, prepare accurate and timely financial reports and statements and ensure appropriate accounting control for Company X and associated operating companies. • Essential functions • Education and experience • Key competencies • Salary & benefit range

23. STEP #3 - • Script the interview: • Why do you want this job? • What are the most valuable skills you would bring to our company? • If you stayed with your current company, what would be your next move? • Tell me your greatest accomplishment • How many hours a week do you need to work to get your job done? • Give me an example of a time when you took the time to share a co-worker's achievement with others. • What makes you stand out from others?" • Source: “The Hiring & Firing Question & Answer Book” by Paul Falcone

24. STEP #4 - • Develop a system to choose the best candidate: • Build a matrix to grade the following, on a scale of 1 to 5, 5 being the best: • Letter – clear, concise and direct • Resume – appropriate for job • Responsibility #1 – manage all accounting functions • Responsibility #2 – produce accurate/complete reports • Responsibility #3 – analyze & predict future • Duty #1 – assure timely processing of AR/AP • Duty #2 – produce weekly payroll & manage pr taxes • Duty #3 – reconcile bank/credit card/vendor statements • Skills #1 – QuickBooks/Exactimate/ExactAccount • Skills #2 – Excel proficiency • Skills #3 – strong communication abilities

25. STEP #5 - • Set up an effective on-boarding & training process • On boarding: the process by which a new employee is brought into the company • Offer letter • Employee manual • Office tour, introductions; mentors (?) • Training & expectations • Week 1 & 2 • Weeks 3 & 4 • Month 2 • Month 3 • Review and evaluation; next steps

26. AND FINALLY - “Don't ever hire on the spot. Withhold your decision until you can review enough information to make a rational decision. If you don't, you might end up putting someone in a job where they're just going to fail.“ Most hiring decisions are made in the first 7 to 9 minutes, according to an HR expert. Take your time & hire the right person.

27. NOW WHAT? • Hiring is difficult, training is even more so. • With the new hire, establish specific accountabilities for the 90 day probationary period: • First week – meet and learn about the key players in the management team; understand company mission, vision, learn vocabulary, the filing systems • Second week – review historic financial records, work with current accounting staff to learn their methods – what works, what doesn’t and why

28. TRAINING, CONTINUED - • Third & fourth weeks – learn the basics of accounting processes: AR/AP/Payroll – determine specific system training requirements • Month 2 – learn month end close processes, including current reporting capabilities • Month 3 – begin to develop suggestions for system improvements; write report re state of company financial management for end of probationary period/evaluation & goal setting for next 3 months

29. III – IN SUMMARY • Do you need a CFO? • Maybe, maybe not. • What you do need is a “numbers guru” who lives and breathes financial and job cost information, who can anticipate the future based on the past, who can hire, train and fire, when necessary, good employees for this very important department! • This person will change the entire company! • You need this person, regardless of title!

30. QUESTIONS & ANSWERS - • Thank you for your attention! • Thank you to Business Mentors for inviting me to speak with you today. • Contact me at: • jfmiller@remodelservices.com • www.remodelservices.com