1 THE PROGRAMEXECUTIVE’S SESSION 9 INTRO TO FINANCE FOR EXECUTIVES
Purpose:
PURPOSE AND LEARNING OBJECTIVES
To learn about finance and why top executives love and work with their CFOs Learning Objectives:To learn… • Why your CFO is so important • How to work with your CFO / accountant • How to not be intimidated (but excited!) by accounting and finance 2
KEY OBJECTIVES (FOR THE SESSIONS) You learn… • That you cannot abdicate finance • To not be intimidated by accounting and finance • To understand the basics of accounting • To understand your financial statements • To learn the tools and vocab of finance 3
AGENDA 1. Recap and Orienteering 2. Why you should love your CFO 3. What a good CFO / CEO relationship looks like 4. How a good CFO / CEO manages their finances 5. Accounting for Execs 6. Finance for Execs 7. Summary, reflection and assignment 4
SECTION ORIENTEERING1 5
E-MYTH REMINDER “Systems bring freedom…” “Carefully crafted systems allow your business to operate and produce consistent, predictable results without being dependent on you.” “This applies to finance, marketing, sales, and it absolutely applies to how you manage and lead your people.” - E-Myth 6
THE 5 HABITS 7 Mindset Your morning routine Mindset Your morning routine Practice Learn do teach Practice Learn do teach Feedback Coaching Feedback Coaching Focus Your plan. Focus Your plan. Time Management Your calendar Time Management Your DisciplineDisciplinecalendar=Freedom=Freedom
20 StatementGuidingyears energizedgetmorningtostrategicinputonboarding,UsedmodelOperatingmodel,BusinessValues,Strategy,Mission,Vision,duringtotheplan,readinthetoyou 5 years Annual Quarterly Monthly Weekly Daily THE PLANNING & EXECUTION SYSTEM 8 Team Meetings Strategic Plan PlanManagementAnnual&Budget BoardQuarterlyReport,OKRs MonthlyReportsMgt. TheLegendWeekly Daily Calendar AnnualMeetingPlanning AllMeetingHands BoardQuarterlyMeetings MonthlyMeetingsMgt. The LegendMonday&FridayWIR Communications&Reporting
WHAT WE ARE BUILDING 9 ExecutePlan Organizational Structure For organizing Position Agreement For unit managers Role and Purpose (why) Accountable for List of StandardsResponsibilities(KPIs) Standard StandardsPersonForProcedureOperatingfunctionsStepsAccountablePeopleResponsibleateachStepKPIs Battle Rhythms For ReportingaccountabilityMeetings/TargetsP.O.A. A Planning QuarterlyStrategicSystemPlanAMP-OKRs-OKRsMonthly-KRsWeekly-LegendDaily-Calendar Gender Balance
ORGANIZED KPIS FOR YOUR COMPANY 10 OperationsCEO BUDivision BU BU BU Admin Finance Sale Marketing& KPIs KPIs KPIs KPIs KPIsKPIsKPIsKPIs KPIsNOTE:are in your PAs and TargetsSOPs.for your KPIs are set in your AMP andKPIsNOTE:Budgetarein your PAs and TargetsSOPs.for your KPIs are set in your AMP and Budget
• For
THE REPORTING PROCESS ImproveSelectKPI/ Baseline / Set Target ExecuteCollect&DataAnalyze Report DecisionsMake& 11
• Each
Breakdown your Goals/Objectives into Metrics each BIG process, you have a BIG result.This BIG result should be measurable (a SMART Objective) BIG process has SMALLER activities that happen quicker (hourly, daily, weekly). These SMALLER activities should be measured to tell you sooner, if the BIG objective is on track.
• Each
•
Breakdown your Goals/Objectives into Metrics each BIG process, you have a BIG result.This BIG result should be measurable (a SMART Objective) BIG process has SMALLER activities that happen quicker (hourly, daily, weekly). These SMALLER activities should be measured to tell you sooner, if the BIG objective is on track.
• For
•
SELECTING KPIS Inputs Activities Outputs Results 12 # # # # Balance the KPIs you have at 4 stages
Governance
Intro to Execution
The Habits Have a morning routine! Use your calendar. Set 3 “I Musts” each week and map them to your calendar.
ORIENTEERING: STEP-BY-STEP
The AMP Write down you AMP. Look to the Left!
Build your binder! “I should write that down.” Write SOPs. They are the treasure. Plan + Organized Team + PAs + SOPs + Battle Rhythm = Results!
ManagementTeams
Have an org chart and use it to organize your company
Reporting Start measuring 5-10 KPIs for your company.Weekly or monthly.As you measure it, you will see improvements.
Ask for their feedback! Follow your own rules – set the example. Everyone is watching you.
Meeting Run great meetings! Use them to drive execution. Use meetings to drive execute. Have P, O and A for every meeting.
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. Write PAs for those connected to you (your management team).
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SessionTopics
Start with your Guiding Statements, and KISS and use it (Coffee Stains) to set your annual plans.
Strategic plan is the input. Use the AMP to set quarterly and monthly OKRs. Chop up your goals into bite-size work that ultimately becomes weekly projects and I Musts.
What I would expect you to do…
Have a diverse group with authority (ideally a board) to give you feedback and holds you accountable to your plans
Strategic Planning Write down your 5-year plan
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ASSIGNMENT 1. Use your calendar: Set your three I Musts for the week and map all your time to your calendar. Set one of the I Musts to work ON the business. 2. The ON the business I Musts:Take three hours to meet with your managers and 1) select 2-3 KPIs for each of their units; 2) Ask them to baseline the KPI for Feb and set a target for March; and complete the Reporting Method table. Ensure your manager understands the entire table. 3) Schedule the April management meeting for the week of April 8. Invite management. Provide them with the P,O and A. Have them be prepared to present the reporting table. Check-in with your managers to help them prepare the week of March 25. 3. Submit your Reporting Method table for one unit via email to gain acceptance into the next class. 14Proprietary and Confidential to RENEW LLC
SECTION 2 WHY YOU SHOULD LOVE YOUR CFO 15
Because you are the CFO! 16 OK the co-CFO. But think like a CFO!
96% of companies fail… Because they run out of cash. 17
SECTION 3 WHAT A GOOD CFO / CEO RELATIONSHIP LOOKS LIKE 18
Trust & Respect
WHAT BAD LOOKS LIKE 20 Don’t KnowYour NotReviewedAbdicatedNumbersYearlyErrorsandLateusingaBudget KnowYour TimelyReviewedDelegatedNumbersMonthlyandAccurateUsingaBudget
SECTION 4 HOW A GOOD CEO / CFO MANAGES THEIR FINANCES 21
THE STEPS 1. Step 1:Tighten accounting 2. Step 2: Have a plan (budget & 13 WCF) 3. Step 3: Collect monthly financials 4. Step 4:Analyze your financial statements 5. Step 5: Drive your finance battle rhythm 22
STEP 1:TIGHTEN ACCOUNTING 1. Hire a good (disciplined!) accountant. – Is very discipline – Has high integrity – Knows Peachtree or QuickBooks and IFRS – Can tell you “no” 2. Do a “health check.” – Prepare and read your financial manual – Clean-up your accounting system – Review and improve your financial controls 23
20 StatementGuidingyears energizedgetmorningtostrategicinputonboarding,UsedmodelOperatingmodel,BusinessValues,Strategy,Mission,Vision,duringtotheplan,readinthetoyou 5 years Annual Quarterly Monthly Weekly Daily STEP 2: HAVE A PLAN 24 Team Meetings Strategic Plan PlanManagementAnnual&Budget BoardQuarterlyReport,OKRs MonthlyReportsMgt. TheLegendWeekly Daily Calendar AnnualMeetingPlanning AllMeetingHands BoardQuarterlyMeetings MonthlyMeetingsMgt. The LegendMonday&FridayWIR Communications&Reporting
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STEP 2: HAVE A PLAN 25 5-year Plan Financial Model Annual Plan Annual Budget Quarterly Plan 13-week CF forecast •
•
•
•
•
• Example
Owner: CFO, Controller What: Shows cash flow needs by week Why: Bills are paid on a weekly basis Use: Do we need to delay any payments? Looks like: Cash Start. Cash In. Cash Out. Cash End. End is the start for the next week. Each week updated and extended. 13 columns.
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Owner: CEO and Board
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•
•
• Example
What: Shows the financial performance for 5 years. Used for valuation. Why: Need to know if we need to raise capital. Uses: Capital budgeting and valuation. Looks like: IS, BS and CF in years
Owner: CEO, CFO What: Shows the target financials performance for the year. Why: Need to have a financial plan to mirror the AMP. Use: How profitable will we be if we pursue these initiatives? Looks like: IS, BS and CF in months. 12 columns.
•
•
• Example
STEP 3: COLLECT MONTHLY FINANCIAL 1. Demand that your finance team closes the books by the 10th of EVERY month. This forces discipline, catches errors and may save a lot in taxes. 2. Have your team email you the financial statements on the 10th and financial report on the 15th . 26 Discipline = Freedom
STEP 4: REVIEW YOUR FINANCIALS Weekly – 30 min 13-WCF 1. Open your 13 Week CF and make sure is has been updated. 2. Look out to see if cash gets tight in the weeks to come (or negative). 3. Meet with your finance manager / team to adjust payments or collect faster. Monthly – 1 to 3 hours on Financial Statement Analysis 1. Pull financials into Excel. 2. With Excel calculate your key metrics (next session). 3. Compare last month and last year.Any big changes? Why? 4. Compare to your budget (TvA). Any big variance? Why? 5. Prepare questions and meet your team. 27
and margins
2.
common size
a 1-3 hr. monthly finance meeting on the 15th.
risks
STEP 5: DRIVE YOUR BATTLE RHYTHM
1. Set the meeting for the 15th. Don’t accept excuses to delay. Ask your finance team to prepare slides. Send these around 24 hours before.Will have TvA, analysis, ratios table, and recommendations. Hold Purpose is to
3.
review the financial performance. Outcomes are an understanding of how the company did (TvA), decisions to address risks or pursue opportunities, and adjusted forecasts.Agenda 1) TvA and Variance Analysis, 2) Margin Analysis, 3) Ratio Analysis, 4) Forecast 5) Risks and Recommendations, 6) Decision & Next Steps 28
finance
1. Annual Budget Planning Meeting: Set the company targets (AMP). Build the budget with the CFO.
4. Weekly 13-Week Cash Flow Meeting: Review the end cash position with the forecast.Any difference? Problem is there is.
3. Monthly Finance Meeting: Budget Targets vs.Actuals. Review ratios (and 13-week CF). Ask “why” 7 times. Make decisions – changes in management, approach, etc.You need to hit those targets!
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2. Quarterly Board Meeting: Show budget Targets vs.Actuals. Show key ratios, cash position and 13-week forecast.
STEP 5:YOUR FINANCE BATTLE RHYTHM
SECTION 5 ACCOUNTING FOR EXECS THE ACCOUNTING SYSTEM 30
1. TransactionsIdentify 2.JournalRecordEntries3.PostLedgerEntries TrialUnadjusted4.Balance5.AdjustedEntries Statements6.AdjustedTrialBalance7.Financial 8.BooksYourClose THE ACCOUNTING CYCLE 31 More frequent is a financial control You want this info You understandshould this processThe Accounting Cycle
Source:
https://keydifferences.com/difference-between-journal-and-ledger.html • Based on when they occur Journal • Based accounts)(chartaccountsonof • Double entry GeneralLedger • double-entryChecks • Does balance?it Trial Balance • The statementsfinancial AccountsFinancial
ACCOUNTING BASICS 32
JOURNAL LEDGER
The process of recording transactions into the Journal is known as Journalizing. The process of transferring entries from the Journal to ledger is known as Posting.
Meaning
The book in which all the transactions are recorded, as and when they arise is known as the Journal.
Record Chronological record Analytical record Process
How are recorded?transactions Sequentially Account-wise Narration Must Not necessary. Balancing Need not to be balanced. Must be balanced. Source:Accounting Coach Review
The book which enables you to transfer all the transactions into separate accounts is known as the Ledger.
ACCOUNTING BASICS:VOCAB 33 BASIS FOR COMPARISON
GENERAL LEDGER 34 DEBIT CREDIT Asset Liabilities Expenses Gains Losses Income Dividends RevenueEquity Source: Investopedia Money inMoney out
THE FINANCIAL STATEMENTS BASICS • The 5 Elements: – Assets:What you use – Liabilities:What you owe – Owner’s Equity:What you own – Revenues:What you take in – Expenses:What you pay out 35
THE ACCOUNTING EQUATION Assets = Liabilities + Owner’s Equity 36 + Beginning Retained Earnings + Revenue - Expenses - Dividends Assets = Liabilities + Contributed Capital
SECTION 6 FINANCE FOR EXECS THE STATEMENTS 37
• Balance Sheet:What do you have, owe and own? How strong is your company? Are you getting stronger? Income Statement: How did your company use its assets? Are you profitable? Are you performing better? Statement of Cash Flows:Where is cash coming from and going to? Are you getting healthier?
THE STATEMENTS BASICS
FINANCIAL
The 3 Financial Statements: –
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–
–
•
: Does
Near term strength - Liquidity: Current Assets/Current Liabilities (CL), Cash/CL (want these to be big)
Long term strength - Leverage: Debt/Equity, Debt/Assets (small is less risk) Other Uses: Most basic valuation of the company = Book value (Owner Equity) Your net worth!
• What
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•
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–
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BALANCE SHEET is tells you: How strong is the company? How wealthy are the shareholders? Layout:Assets = Liabilities + Owner’s Equity. From liquid to non-liquid: From short to long term. to look at it balance?
• What
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41Proprietary and Confidential to Renew LLCSource:Accounting Coach What couldsmartgenderKPIsyoucheckhere? Pay equity PoliciesKPIs
ANALYZING PAY EQUITY 42 • Pay Equity is a key feature of gender smart companies Pay equity KPIs are key • Investors increasingly pay attention to pay equity SEAF GES as a tool • Regulation around pay equity is getting stronger Recent UK regulation is serving as an international example o Gender pay gap reporting is mandatory; accounting systems of companies must be upgraded with a gender lens Great guidance on KPIs/measurement
ANALYZING PAY EQUITY 43 Recap: SEAF Gender Equality Scorecard
44 Practical
ANALYZING PAY EQUITY guidance for insightful analysis:
ANALYZING PAY EQUITY guidance for insightful analysis:
45 Practical
PAY EQUITY 46 Practical guidance for insightful analysis: Is there gender imbalance in your hiring?
ANALYZING
ANALYZING PAY EQUITY guidance for insightful analysis:
47 Practical
ANALYZING PAY EQUITY guidance for insightful analysis:
48 Practical
INCOME STATEMENT • What it tells you: How is the management team performing? How profitable is the company? • Layout: Revenue – Expenses = Profit.Top to bottom: Sales, COGS, SG&A, Profit (the bottom line) • What to look at: – Targets vs Actual Performance.And why?. Don’t want more than 10% variance. – Margins: GPM (Gross Profit/Sales), OPM (Operating Profit/Sales), NPM (Net Profit / Sales).Want these to be “fat”. – Trends or Growth (%) = MoM and YoY. • Other Uses: Quick valuation: EBITDA x ____ = rough value 49
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What gender smart KPIs could you check here?
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Lawsuits
PoliciesKPIs
can be gender related: e.g. discrimination,paysexualharrassment,etc.
CASE STUDY: CLOUDCFO
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CloudCFO is an innovative Filipino SME providing bespoke accounting, bookkeeping and tax compliance services through the utilization and enablement of cloud and smart technology.
CASE STUDY: CLOUDCFO 53 • Women are underrepresented in CFO roles in the local market. • The company undertakes strategic efforts to target women-led SMEs as customers. • No major pay discrimination across different employee categories with a compensation ratio of the women to men being at least 90% • Now establishing employee surveys with disaggregated data to further improve pay equity and other non-monetary compensation Example KPIs: • Share of companieswomen-ledascustomers • Share of sales to gender smart companies • Customer satisfaction data of women-led companies
• Tracking gender disaggregated KPIs was key to detect the problem.
• The company set up a clinic, built a canteen, provided day care for children. Strong business case: Quick return on investment + stronger financial performance of the company Effective action taken based on gender-smart data-driven insights Gender smart policies and practices have proven the business case Regular monitoring of gender smart KPIs help the company stay on track and steer towards its targets.
• Had the company detected the problem sooner (or carried out a gender smart market study beforehand) and taken gender smart action, it might have avoided the costly relocation.
• When the company opened in the new city, it started to implement programs to help reduce turnover - which has a huge impact on efficiency.
CASE STUDY: DESTA 54
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• Gender smart business solutions turned out to be critical for the company’s success.
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Challenge:
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Ultimately, they needed to relocate to another city because of turnover. Action:
Desta is a textiles company which had a high turnover of female employees. Women make up a significant share of their workforce, so this is a business critical issue.
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• Other uses: How strategic your CFO is. If net incomes is high but cash is low you are likely not collecting or you are paying supplier too fast. – Is there something fishy going on at the company?
CFO = are you making cash from operations? Want this positive and growing. CFI = are you making investments or liquidating assets? – CFF = are you getting or paying money? Where is it coming from?
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STATEMENT OF CASH FLOW What it tells you: How healthy is the company? Does the company have cash? Where is it coming from? Layout: Cash Start + Cash In – Cash Out = Cash End.Also, CFO + CFI + CFF = FCF What to look at:
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56Proprietary and Confidential to Renew LLCSource:Accounting Coach
INTRO TO FINANCIAL ANALYSIS • Uses your three financial statements and your budget • Uses Excel. Peachtree / QuickBooks can do it. Most often the data is pulled into Excel • Calculates ratio and percentages • Presents graphs and tables • For making decisions 57 NEXTSESSION
SECTION 5 BREAKOUT 58
Based
you learned, what can you be doing?
the questions you have as we move into Finance for Executives? 59
3. on what
2. are your points/problems related
What
daily pain
What
BREAKOUT DISCUSSION
1. What is your experience with CFO/finance How many hours per week do you interact with
your current
4. are
the finance team?)
manager/accountant? (i.e.
to finance and accounting?
SECTION 6 SUMMARY & ASSIGNMENT 60
. • Hire
SUMMARY abdicate finance.Think of yourself as the Co-CFO a good accountant, finance manager or CFO. Someone you trust that is disciplined and and understand your finance manual - the SOPs for the finance department. a financial plan:The annual budget and a 13-week CF. your books every month.Ask for the financial statements. a monthly finance meeting - one of your two monthly battle rhythms. Read your financial statements - BS, IS, CF - and see what they sell you.
skilled. • Read
• Don’t
• Close
• Hold
• Have
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•
1. Use your calendar: Set your three I Musts for the week and map all your time to your calendar. Set one of the I Musts to work ON the business.
2. Schedule 3 hours: For your ON the business “I Musts,”1) collect your financial statements from your accountant. Read them.Write down three things that see. 2) Ask for the financial manual and read it. If you do not have one, spend another 3 hours to sit with your finance manager, and begin writing it together. 3) Tell your finance manager you want them to close their books on the 10th .
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HOMEWORK ASSIGNMENT
3. Send me your most recent financial statements and three observations and bring them to the next class to gain access to the next course.
FEEDBACK FORM 63Proprietary and Confidential to RENEW LLC
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