A recent experience in CFO Connections brings me back to my child hood and it reminds me that listening to my parents has really served me well in life. I didn’t know my mother was a wise woman until years later when I look back on my life experiences. I now realize that she was steering me and showing me a better way to do things and to live life. She wanted me to learn from her life experiences so that I can make better decisions in life. I would often hear her say, “Some mistakes you just don’t want to make yourself. Sometimes, it is better to learn from other people’s mistakes.” How does that translate into the business world?
An entrepreneur with a brilliant idea put the wheels in motion a few years ago and it has grown tremendously into a second stage company with investors knocking on its doors. Recently, the founder of the company decided that he would take the company public. You ask, “hey, it all sounds great, so where is the problem?” Well, in order to go public, the company must have audited financial statements and the company plans to go public within a couple of months. This is already a challenging time frame for companies having their accounting records in tip top shape. Unfortunately, for this particular company, the accounting function was largely ignored for the past few years. With investors and underwriters pushing to move quickly and the company’s auditors in their busy audit season (so their time comes at a premium), the company must now frantically catch up in order to meet its goal of going public in a short period of time. Racing against time and pressure from investors and underwriters, the company hired a part time CFO to steer the company towards the right direction. Next, the part time CFO hired three accountants with different expertise to clean up the accounting for the past few years. This process has been costly and time consuming. Additionally, since the accounting function was largely ignored in the past, the company is also not in compliance with multi-states sales tax reporting and collections (and interest and penalties are accruing in the meantime) and its income tax filings. There are also no processes and procedures in placed with regards to internal control. Needless to say, it has been almost five months since the wheels have been put in motion and it is still a long road ahead for the company to reach its goal.
How would the alternative be different for the company? Having strong accounting leadership and an accounting team may be costly. After all, talents who can provide strategic leadership and help a company grow don’t come cheap. However, this is an investment that will generate returns many times over for a company. Taking a proactive approach on accounting means that it is less likely for a company to fall out of compliance. Being diligent in accounting also means that a company has time on its side. For example, for this particular company, it would have allowed them to strategically time the execution of the audits of its financial statements during off-season at a lower price tag. Most importantly, it allows a company to strike while the iron is hot. Opportunities don’t come often and money doesn’t have patience. This is especially true in these scenarios:
- Investors knocking on your door – they love your idea and entrepreneurial spirit but also want to know that your company is making money
- You decide to sell the company in the next few years – the buyer wants to know that your business is profitable
- You have just secured a large customer and need funding from a bank to hire more people, buy more equipment, manufacture additional inventory, or acquire a new facility
- You see opportunities and advantages in buying your competitors – you need funding in order to make it a reality
“When people tell me they’ve learned from experience. I tell them the trick is to learn from other people’s experience” – Warren Buffett
Which one are you? At CFO Connections, we are passionate in learning from each other and helping you grow. We know you have big plans ahead. Wouldn’t it be nice to know for certain that you will be able to realize those plans without the constraint of time and money? Let us help you seize your next opportunity. Contact us now.