You are the CEO of a growing business. Do you need to:
Spend more time in areas of the business where you add the most value?
Maximize cash?
Add an operational finance perspective to your team?
Update your strategic plan?
Raise capital to grow your business?
Add a trusted advisor to your executive team?
Develop an exit strategy for your business?
If you answered yes to one or more of these questions, it could be time to get an experienced CFO on your team.
You may have thought about hiring a full-time CFO but held off given cost. Or perhaps you were concerned that you do not have enough work to keep a full-time CFO challenged. There is an alternative: You can engage an experienced CFO on a part-time or project basis.
By hiring a fractional CFO, you’re instantly gaining access to all the knowledge, experience and lessons learned by this CFO over a career. All at a significant cost savings to you.
Jay Nathanson, COO of Image Group, found it to be “a very, efficient way to use expertise.” Adding, “It really became a great opportunity for me to be able to grow the business without making the investments of full-time people.”
Building on my 35 years of experience, including serving as a full-time CFO for six companies and as a fractional CFO for others, I share several scenarios which describe situations where a fractional CFO might be able to help you.
YOU KNOW YOU NEED A FRACTIONAL CFO WHEN… (7 SCENARIOS)
Scenario #1: You Need to Spend More Time in Areas Where You Add the Most Value
If you’re spending more time in planning and forecasting, contract negotiations and interactions with investors, and less time with customers, in strategy development and in other areas where you excel, it’s time to engage a seasoned CFO. This executive will free you up, enabling you to add greater value to the business.
Scenario #2: You Need to Maximize Cash
You understand that cash is king. You need the ability to forecast future performance, staying on top of cash forecasts, debt covenants, receivables and payables. You also need creativity in the use of bank and other kinds of debt. An experienced CFO can help you maximize cash at the lowest cost.
Scenario #3: You Need an Operational Finance Perspective
You are getting accurate historical financial information; however, you are not getting meaningful analysis and insights from such information to drive your business forward. The right CFO will bring significant operational finance experience to the business, enabling you to fully understand historical performance, get the right metrics in place and more.
Scenario #4: You Need to Update Your Strategic Plan
As your business grows, there are many places where you can invest limited resources: sales and marketing, product development, customer success and more. To get the best return requires an understanding of customer issues, customer and product profitability, the competitive landscape and more. An experienced CFO can link financials and strategy, helping develop a plan which will increase your odds of success.
Scenario #5: You Need Capital to Grow Your Business
To execute your plan, you need to invest more in sales and marketing, customer success and new product development. This requires additional capital. Engaging a CFO skilled in raising capital will help you negotiate the best deal, minimizing dilution.
Scenario #6: You Need a Trusted Advisor As the business grows, you are encountering a range of issues and questions, from personnel (e.g., what incentive program is right?) to tax (e.g., do I have sales or use tax exposure?). You need someone on your team with significant experience across many businesses and circumstances, someone who understands and has been around different C-Suite roles. Engaging an experienced CFO will help you get to the right answer quickly.
Scenario #7: You Need an Exit Strategy Positioning your business for sale is not cut and dry. If you’re considering a sale in the next few years, now is the time to prepare. To get the most value, you need the advice of a CFO skilled in buying and selling companies.
About the Author Bobby Jenkins, Managing Director, Fahrenheit Advisors (Charlottesville), is an accomplished executive with 35 years’ experience and a demonstrated track record in diverse businesses and circumstances. Working with public and private companies, large and small, he has played a key role in increasing equity value for stakeholders. His experience and skills position him well now to add value to Fahrenheit clients, particularly in engagements related to business planning, capital raises, performance management and restructuring.
Today in business, there are more acronyms, legal agencies, and regulatory requirements than ever before. If you employ people in your business, you must understand and comply with these requirements, which can be daunting. The number of people on your payroll determine the magnitude of your time involved and, ultimately, the work expended to comply with the requirements. The full life cycle of an employee from recruiting strategies through terminations and all actions in between present opportunities for legal issues. The key is creating best practice processes, policies, and a workplace culture that protects your company and manages risk.
Where are we now? Every February the President’s administration releases its proposed fiscal year budget for the upcoming year outlining the White House’s priorities for the year ahead. Many of the items for FY 2019 contain a number of workplace-related proposals, specifically changes to labor, healthcare, and immigration. Below are the main topics to consider when assessing strategic decisions for your business and HR policy. While some of these areas are still in the proposal stage, they will be items to keep an eye on going forward.
LABOR
Paid Parental Leave establishes a federal and/or state paid parental leave program. Family Medical Leave Act (FMLA) was passed and allows for unpaid leave for up to 12 weeks if your organization meets the qualifications. A new regulatory proposal suggest that paid parental leave might be found and funded within the unemployment insurance program. These provisions, if passed, would begin in 2021. Another option is a voluntary Social Security (SS) benefit program that would provide pay during parental leave as an offset to future SS benefits for employees who wish to take six weeks (2019 proposal) of paid leave for mothers, fathers and adoptive parents to stay home to recover from childbirth or bond with their children. This federal legislation did not pass for this year but many states and companies have implemented a similar policy as a way to address retention.
Employees who work for the State of Virginia are now eligible for paid parental leave per the Governor’s Executive Order signed in 2018. The new benefits, which took effect last summer, provide eight weeks of leave at full pay to mothers and fathers alike. Workers who become parents through adoption or foster placement are also eligible.
DOL and Overtime Held over from 2016, and still ongoing, are revisions to the Fair Labor Standards Act (FLSA) and overtime regulations. These regulations affect almost every employer and are paramount in the minds of employees in non-exempt status roles who are eligible for overtime compensation. In May 2019, the DOL has proposed revisions to allow employer specific policies and practices that will drive employee engagement, retain the current duties test, and adjust the nationwide salary level (using the same methodology used in previous rulemaking). The Department of Labor has proposed an increase in the salary-level threshold for white-collar exemptions by $11,648 (from $23,660 to $35,308 per year). If finalized, the new overtime rule would result in the reclassification by employers of more than a million currently exempt workers as nonexempt and an increase in pay for others above the new threshold. The proposal does not call for automatic annual adjustments to the salary threshold.
As an organization, consider the reclassification exercise as a way to review job duties, schedules, staffing levels, and salaries. This could have a profound impact on payroll and budgets by making more employees in the workforce eligible for overtime pay when converted from exempt to non-exempt. Above all, ensure that your approach is consistent across the organization.
The Second Chance Act (in the original budget proposal) supports individuals exiting prison to transition to community life and long-term employment through mentoring, job training, and other initiatives. Part of this effort includes apprentice programs at the state level to enable successful outreach strategies, partnerships, economic development strategies, and fuller integration into society. The First Step Act (legislation passed by Congress in December 2018) gives judges more discretion in sentencing offenders for nonviolent crimes and gives inmates credits for in-prison job training and education so they can earn early release.
HEALTH CARE
Affordable Care Act (ACA) proposals have contained funding for a two-year cost sharing reduction in subsidies. This will impact the individual market and may shift significant costs to employers and other private sector payers as well as the federal government.
Prescription Drug Costs The Department of Health and Human Services (HHS) has published a proposed rule to lower the cost of prescription drug prices by encouraging drug manufacturers to pass their rebates directly to consumers (by-passing the pharmacy benefit managers). This proposal targets Medicare plans and other government health plans but, over time, will impact employer sponsored group health plans. If approved, the effective date is January 2020. In October 2018, President Trump signed into law the Patient Right To Know Drug Prices Act which allows pharmacists to discuss drug pricing with patients. Pharmacists may now educate consumers regarding their medication, pricing, and alternative cost-efficient options.
Association Health Plans and “repeal-replace” were debated throughout this past year, a lot still remains to be discussed and debated in the health insurance arena.
IMMIGRATION
I-9 Audits U.S. Immigration and Customs Enforcement (ICE) have significantly increased the number of I-9 audits this past year due to new federal initiatives. It is expected that I-9 audits will continue to be a significant hot button for ICE in 2020. Small to mid-sized employers are especially vulnerable and are easy targets for fines. It is important to know: 1) How to complete the employer portion of the I-9 form, 2) What documents are acceptable, and 3) How to interpret those including expired documents. Ensure all I-9 files are kept separately from other employee files; they require ongoing maintenance and compliance.
Employment Verification Over recent years, there has been a push for a nationwide mandatory process using E-Verify, the government’s electronic employment eligibility verification system for all employers. The same proposed funding includes staffing for more Immigration and Customs Enforcement (ICE) officers and additional worksite investigators. Much of the funding for these initiatives are a result of employer I-9 audits and associated fines.
About the Author Beth Williams is the Director of Human Resources at Warren Whitney. She has worked in human resource management for more than 25 years with experience that spans many diverse industries, including accounting, energy, financial services and banking, legal services, pharmaceuticals, IT, and non-profit.
Editors note: Image and content provided by Warran Whitney. This post article was originally posted here. Warren Whitney is a Sponsor of Virginia Council of CEOs.
As the executive director of the VA Council of CEOs, I interact with some of the most successful business leaders in Virginia every day. Their lives are very different from those of the average person. As CEOs and business owners, they are responsible for employees, finances, technology, strategy, sales, customers … and I could go on and on.
These CEOs find refuge in the Council because of our explicit “Safe Haven” culture. This culture starts with purpose. Within the VACEOs community, our purpose is connecting for learning and growth. We are here to learn from one another and find ways to help each other. Members and Sponsors make meaningful connections and adhere to a strict “no-sell” culture. Members share deeply personal and profoundly challenging business experiences in their peer roundtable groups. And it’s understood nothing shared leaves the room. Ever.
It’s a place of comfort, where the CEO can be themselves and not be judged. Perhaps VACEOs’ Safe Haven culture is best summed up by what we are NOT.
We aren’t a hardcore networking group (those have a different purpose).
We’re not a place to go if you want to stay professionally stagnant or stuck.
We’re not a group of self-absorbed individuals. (We are genuinely invested in each other’s success.)
“Having a safe haven for CEOs is a tremendous comfort and it’s a tremendous place of learning. I’m really thankful to have it in my life,” said one Charlottesville CEO recently.
We are proud of this unique culture that gives CEOs a much-needed refuge. It allows us to connect in meaningful ways, learn from others’ experiences, and get clarity in a complicated world.
It’s a tough and lonely job, running a business. Your actions (or lack of action) affect so many. VA Council of CEOs is your safe haven.
What’s your safe haven like?
– Scot McRoberts
Executive Director
VA Council of CEOs
As a banker, we hear it a lot. As a borrower, you might have said it before. “My interest rate is so high. Can’t you come down on that rate a bit?” It seems like a fair question, especially given the current competitive banking environment. It always seems like banks are trying to attract your business but at the highest interest rate possible. As bankers, we do understand your concerns, especially when it seems like another bank down the road will offer you something different.But in the bigger picture, is a bank’s cost of capital really THAT high? That answer will most likely depend on the type of financing you are requesting based on the risk profile of your business.
While banks are providers of capital, they are usually the lowest risk provider in the market. For a bank, an investment is the loan that is being extended while the risk is the business’s ability to repay that debt. Just like most other investments, the higher the risk (i.e. the greater the concern for repayment of debt), the higher the return (the interest rate that will be charged).
FROM STARTUP THROUGH GROWTH PHASE, UNDERSTANDING THE SPECTRUM
Let’s assume you are in the process of starting a business. According to data provided by the U.S. Bureau of Labor Statistics, roughly 20% of small businesses fail within their first year while 50% fail by year five. Approximately 35% remain in operations after ten years. You have a business plan and you’ve identified human capital that will move the business forward, but you haven’t quite gotten off the ground. There is a lot of excitement and prospects for taking your idea to market. You need some form of capital, outside of what you can provide via your own personal equity, to handle projected expenses.
SEEDING THE STARTUP…
In the seed and startup phases, businesses often experience minimal revenues, net losses, and cash flow and working capital deficits. It is challenging for a bank to be comfortable with a new company’s ability to repay debt due to these factors and the overall statistics mentioned above.Because of this, businesses may be required to find capital sources through such things as crowd funding, angel investors, venture capital funds, and small business administration loans.Businesses that have utilized these sources of capital will tell you that this type of financing can include significant interest rates, the potential for loss of equity, and noted reporting requirements. Though needed to fund the risky startup phase, the costs are very high. The return, or the cost of that capital, will match the risk whether it is from outside financing or bank debt.
MOVING INTO GROWTH…
Great news! Your business made it through the startup phase and is now growing. Revenues are accelerating, net income is being realized, cash flow coverage is strengthening, but working capital needs are challenged. Your debt carrying costs continue to strain cash flow and make it harder for you to fund your business. The startup financing was vitally important, but it might be the perfect time to speak with a commercial banker about replacing your existing, costly third-party debt. You have proven that the market can and wants to absorb your products or services and there is positive cash flow. You’re now less risky because you have shown the ability to repay financing, but there is still noted risk as operating expenses fluctuate and are often unexpected as you grow. Though reduced, risk and limited positive operating results will often result in higher priced bank financing that will still reduce your overall interest expense related to expensive outside startup financing.
INTO MATURITY…
Finally, you’ve made it through the growth phase, and you are an established or mature business. Revenue growth is predictable while your profitability is strong and stable. Cash flows are adequate and your leverage is moderate because of your profitability. Equity in your business is strong and allows you to “weather the storm” that will inevitably come when economic conditions deteriorate. In these phases, you are most likely a great candidate for bank financing as a capital source and you should see a much lower interest burden due to your track record. In fact, you can probably even call the shots on your interest rate as every bank in town is clamoring for you. It took a while, lots of hard work, and varying capital sources, but your company has performed well. Your risk to the bank is low, and so is their return.
The truth is that banks are risk averse compared to other capital sources. Losses incurred by a bank lead to reduced capital levels and the ability to lend, and financial institutions have a fiduciary responsibility to their customers, shareholders, community, and Federal Examiners to be well capitalized. This leads stringent analysis in the underwriting phase to ensure that businesses have shown the ability to perform in a way that enables debt to be repaid. As the risk profile of your company lessens, so should your ability to find capital sources with reduced costs.
If you haven’t already done so, look for a commercial banker that will take time to discuss these areas with you, learn about your business, explore capital opportunities, and ensure that your interest rate is appropriate. Responsible bankers may also provide you with guidance around capital sources if they feel that bank financing is not available at that time. Most importantly, a strong and trusted banking relationship with open communication can provide an avenue for the bank to fully understand your business leading to financing opportunities in various company stages at lower interest rates.
About the Author
Matt Paciocco is a Senior Vice President, Commercial Banker with Virginia Commonwealth Bank. Matt is passionate about working in a community bank that enables him to build strong relationships with his business customers and the surrounding communities. Matt has spent the last 15 years specializing in commercial banking and has positioned himself as a leading community banker in Richmond.
Editor’s note: Image and content provided by VCB. VCB is a Sponsor of VA Council of CEOs.
Charlottesville’s Tiger Fuel President Gordon Sutton Opens Up About Company Growth and More
In 1982, Gordon Sutton’s father, a successful lawyer, found himself in the unlikely position of running a fuel company. At the time, the company was a small short truck distribution business in Charlottesville, Virginia, selling three and a half million gallons of heating oil a year.
Today, Tiger Fuel is a large-scale operation with an employee count of 270. The company is no longer just about fuel – although the fuel business is expected to distribute approximately 124 million gallons to customers across Virginia, West Virginia, Maryland, and North Carolina this year. Still headquartered in Charlottesville, the company now includes nine convenience stores with delis and operates 10 car washes under the All American Car Wash brand.
If you live in Charlottesville – and especially if you’re close to The Market at Bellair on Ivy Road – chances are you know about the gourmet-to-go experience that’s popular there. “We hear all these crazy stories about people driving two hours out of their way to get our sandwiches,” says Tiger Fuel President Gordon Sutton. “The line will be wrapped around the inside of the store and coming back out the store into the lot during UVA game days!”
Gordon, alongside his brother Taylor, runs the business now. Gordon is humble, unassuming, grounded, and articulate. Though he grew up in the business – at 15 years old, riding his bike to go pump gas, wipe windshields and check oil – he once dreamt of a life out West chasing fish. But it’s “Pickle People” he and his team chase today. Here’s more about this soft-spoken, inspiring young entrepreneur.
Q: Tiger Fuel is really diversified. Can you break it down for us?
A: It really breaks down pretty cleanly into three equal buckets. There’s the retail company, which has the stores and the car washes; then we have what we call the short truck or home heat side of our business, which is propane and heating oil [this side of the business serves customers from Appomattox all the way to Culpeper, Virginia]; and then there’s the commercial and wholesale fuel distribution side of the business. This business unit serves the whole state of Virginia into North Carolina, West Virginia and parts of Maryland through a vast network of dealers.
Q: You clearly love Charlottesville, but at one point you thought seriously about living out West. Is that right?
Yes. So I was born and bred here in Charlottesville – went to school here and the University of Virginia – so I’m very passionate about UVA. Charlottesville is a very important part of who I am, who this company is, and what we’re all about.
After UVA, I went to Wyoming. I was a fishing guide out there for three years. I thought that was going to be my “astronaut job,” you know – that I was going to die doing that. And I thought that’s why I was on this earth. And I pretty quickly realized that I had turned the thing I loved the most in the world into work. I also realized I wasn’t realizing my full potential or taking advantage of the gift of a solid education that my parents gave me. So I moved back.
Q: What sets Tiger Fuel and The Markets apart from your competitors?
A: If you think about it, our business, our products, are very generic. You know, nobody’s buying propane from Tiger because it’s better than AmeriGas’s. Nobody’s buying Budweiser or gas or Gatorade at our stores because it’s better than what’s at Sheetz. They’re buying them from us because of our people and our culture and our service. We try to make each customer feel like a celebrity – giving them what we call Tiger Way Service.
That said – and as much as I said our products are generic – we are really, really good at food. In fact, Bon Appétit magazinecredited us with being the first gourmet-to-go gas station. I mean, we’re selling poached salmon and seared steak. Our chefs come from the nicest restaurants downtown and get paid really well. So I’d say what sets us apart is our people, and our commitment to our people, and to the food and service we give.
Sutton with pickle stickers and Tiger Way button.
And I realize that sounds pretty generic, but we really believe that, and it’s baked into our DNA. It’s how we define ourselves. We have a really dynamic, amazing human resources department, and we’re really, really focused on hiring what we call Pickle People.
Q: Did you say “Pickle People”?
A: YES. Part of our onboarding training, or Tiger Way Training, is a half-day training, and there’s a video in there about a successful restaurant. The whole mantra is just, “Give the customer the pickle,” you know? Like, do whatever it takes to make the customer happy. And so we’ve carried that over. I mean, I have pickle socks, we have pickle badges and stickers. It works its way into our hiring process.
Q. In the last few years, you’ve opened three new retail stores and hired 70 employees. How do you find and retain employees?
Again, we have an amazing HR department. They go above and beyond the call of duty. We also pay well, and we have amazing benefits. For example, we just built our own primary care facility with a partner that’s exclusively for our employees. We offer that to part-time hourly folks in the stores. So we’re very, very committed to our employees.
We are also very community minded. The philanthropic work that we’re doing at Tiger is something I’m super, super proud of, and I think it also really helps our ability to recruit and retain, as well. And I think, more importantly, it makes the team feel really great and makes them want to stay and feel good about what they’re doing. It makes them happy at work, which makes them give that great service.
Sutton and his forum at VACEOs Annual Retreat
Q: How has your VACEOs Forum helped you?
I’ve found that it’s been very, very rewarding on a personal level more than anything. When I first got in this role, I was sort of overwhelmed. Nobody wants to hear you complain, and I get that. It’s hard for people to be sympathetic, because they look at you and they’re like, “Oh, you’re at the top!” I totally understand it. But it has been valuable and useful to me to be able to get some stuff off my chest. Sometimes you just need to have somebody to whine to and have them not scoff in your face. The people in my forum group understand what you’re dealing with and are sympathetic.
So it’s been the most beneficial from a personal standpoint – making me a better husband, better father. And I think that correlates to being a better boss and happier person in general, and all of that has an effect. And there are some really, really smart, seasoned, capable people doing some exciting things, and so I’ve learned a lot, too.
“I think if you’re not growing, you’re dying. I know it’s a cliché, but I believe it.” – Gordon Sutton, President, Tiger Fuel
Q: What’s next for you?
A: Continued investment in solar energy projects and diversification into real estate development. We have invested heavily in solar, and we will continue to do that. We’re also developing 33 acres at Zion Crossroads, which will be more of a traditional big box development with a big-name grocery store, a hotel, a couple of restaurants, and apartments and townhomes. That’s a departure for us.
I don’t want to look back on my career and think I just sort of took this gravy opportunity and coasted. I want to look back and say, “I really made a difference. I have that. I made it bigger and better. I created more opportunities for more people.” And so that’s an important part of our future – continuing to grow. I think if you’re not growing, you’re dying. I know it’s a cliché, but I believe it.
About VA Council of CEOs Virginia Council of CEOs members represent a wide range of industries and business sizes. Hundreds of SMB CEOs in Virginia have found the Council to be a critical resource in growing their companies – and themselves. Learn more about the benefits of VACEOs membership.
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