Published in
Strategic Finance, July 2001
Transforming Your Financial Team From Business Referees to Business Partners
Using an Interim Financial Controller to Grow Your Business
By Jim Ganung
An Interim Financial Controller can be sought to help improve a variety of business situations. These can range from filling in temporarily until a person who will become a permanent employee, to helping a company downsize its operations following an acquisition. There is also the “executive Coach” that has become more in vogue. Part of the reason is the significant improvements in the software available to rapidly report financial results. This has permitted the Controller position to move from the “keeper of the books” to a more active business partner. I am sure each of us recognize the satisfaction we used to have of finally getting the final financial statements done. We breathed a quick sigh of relief, and in putting the reports into the various managers’ and/o owner’ hands. We felt that we had accomplished an arduous task. Today, the accounting software available makes those closing periods of a few weeks distant memories. This has lead to a curious phenomenon- the development of an interim financial controller. These experts now become available to small and mid-sized companies that previously could not get that expertise. They couldn’t afford it or they had long term, trusted employees doing accounting wok using the same old techniques. Inventories for mid-sized firms could take a full week. Financial reports were routinely three to four weeks after the reporting period.
The situation described below happened as a privately held manufacturing company continued its rapid change in business growth. Accompanying that growth was a succession of leadership and the continuation of significant change in financial controls and reporting on financial results.
The Vice President of Finance has been in charge of improving the financial reporting and administrative function of a factory located in Maine. This ten million dollar (sales) company has recently increased its orders with a new product line committed to a major franchise. In fact, sales have increased by at least 25 percent compounded growth for the last three years. No financial reports have been done for three months; a new software package that will integrate information throughout the factory had stalled in its implementation. The recently hired junior accountant and payables clerk were scrambling to pay bills. The Vice President of Finance became overwhelmed and resigns.
The owner, a vigorous 76 years-old entrepreneur is concerned. He would really like to retire, but needs this enterprise to be sold for its full worth as an ongoing business.
The owner returns from semi-retirement to replace family members and new untrained employees who could not manage the dramatic growth. He senses that this significant portion of his life’s work is at risk and asks for help from his CPA firm and Board of Directors.
This situation is one that an interim financial controller can work to improve. Having learned of the owner’s concerns while visiting friends in California, we agreed to meet at his factory in Maine. During my initial interview with the owner, we discussed techniques needed to get the financial reporting to begin again. We focused on the weekly “flash” reports that were done each Friday. This report showed the weekly status of orders received, orders shipped, expenses paid, discounts taken, payroll, cash position, line of credit available, and the accounts receivable aging. This report was a vital management tool to understand the financial position. It also was an early warning of slipping orders or a change in customer demands.
Next came a review of the status of the software and its implementation schedule. For a factory of this size, certain modules of the program were delayed to focus on order processing, inventory control and transaction sequence. Payroll reporting was outsourced to a payroll company. The asset and depreciation modules were not installed but instead moved to existing accounting software under the CPA’s management. The implemen-tation schedule was detailed and explained to each department. An agreement on remaining tasks to be done was completed and regular progress reports were distributed so that all could recognize the steps being taken.
As the engagement began, individual training also started. The previous Vice President of Finance had not delegated well and taken on too much work, thereby underutilizing her staff. As the training continued, I found untapped skills in the existing personnel. With leadership and direction, the accounting staff significantly increased its productivity. The accounts receivable person could now review credit issues each week. The sales staff now could review order size and makeup to maximize profit by suggesting proper order quantities. These order quantities both helped the factory to get smoother work flow while improving customer satisfaction. The credit manager could now hold a sales order as accounts receivable issues were resolved.
The commission program could now be discussed and improved to encourage sales growth. Previous commission programs had not recognized the full effect of selling price increases. In fact, the selling price increases had not encouraged aggressive selling by the commission agents. A new program was developed with the Vice President of Marketing to ensure the commission program increased sales units, and not just sales people’s commissions. Selective unit pricing increases had to be done to improve the profitability of selected units.
The manufacturing function could now get direction on quantities to make and cost. Following a review of bills of material, a physical inventory was taken which uncovered opportunities for outsourcing of subassemblies and improvement in inventory control and inventory turns. Request for quotes began to reveal sub-contractors that could make assembly items better and cheaper than within the existing limited factory manufacturing area. These sub-contractors had to follow strict quality performance on their units.
Within three months, there was dramatic improvement in financial reporting, and the financial condition of the company. The fully installed software was now delivering its full effect through more accurate and timely reporting. “Top Ten” inventory items were now being reviewed for “max/min” ordering. The weekly flash reports continued and forecasted the monthly reports.
There were some unfortunate personnel situations that had to be managed with care and compassion. In any situation where change, particularly rapid change happens, people get put in positions beyond their skills. If they are willing, and capable of being trained, they can become valuable employees. So, a key component of an interim controller’s profile (where a company is growing) is to be able to quickly evaluate the individuals and provide as much training as needed. In one situation, the payroll clerk decided to return to school, and this lead to outsourcing the payroll function.
The assignment began to change as the owner could now see his company’s financial position improving. The bank line of credit was paid off. Balance sheet review revealed weakness in distributors’ stocking procedures of demonstration units. A system was put in place with the distributors participating in the process resulting in stronger communication with and review of distributors. The owner and his wife developed an employee hand-book for the first time. All of these things illustrated that the financial functions were becoming stronger and much more reliable.
The assignment concluded with the search for a full-time Controller. I lead the interview and selection of the final candidate, and then conducted a two-week training period with the new Controller. Part of that training consisted of manual of twenty-three pages on the systems reporting and the fully installed software.
Three months after the assignment was completed, the owner was able to sell his business at a high multiple of EBITDA. He has gone on to semi-retirement once more as he develops real estate in Maine. I remain in contact with him periodically as we exchange ideas on current events.
An interim financial controller must posses many skills. The accounting skills are the first threshold that must be demonstrated immediately. More subtle is the ability to listen and communicate. Having a self-depreciating sense of humor helps in all of these crisis situations. Every interim controller must listen to the people involved in each situation. They are the keys to the interim controller’s efforts and eventual success. A successful engagement is determined by properly setting expectations on the outset, execution of the project and the effects that remain long after the interim controller leave. Listening to the client’s needs, assessing the environment and coaching the personnel involved are key success factors. The ability to communicate the problems, the proposed action and the results of the action are vital to each engagement.
I also encourage everyone to participate in the IMA. Through my membership in the IMA, I continue my career development. The organization presents valuable learning and networking opportunities. The IMA has ongoing career and seminars nationally and Internet programs that allow me to continue to learn during evening hours as I travel on assignment. The IMA performs an important function in keeping members current to evolving accounting techniques and new ideas.
ABOUT THE AUTHOR:
Jim Ganung is President of J.R.G.-Controller, Inc. His company is celebrating its 5th year in business. Jim serves as President of the Providence, RI, Chapter of the IMA and Treasurer and Financial Committee Chairperson of his church. He was a Controller for over 18 years at small and mid-sized companies before starting his own company.
