In order to maximize the contributions of a key employee, dealership management must understand that employee's potential role.
The role of your best mechanic, your sales force, your best tire person-their responsibilities are generally understood by dealership management. But what about the role of your company's key financial manager? That person's duties may be much more nebulous, such as: ``To keep me out of jail, complete all the forms for the bankers and auditors, find the company as much money as possible and then keep that money within the company instead of throwing it all away on taxes!''
Whether you have an internal controller or chief financial officer (CFO) or use an external accounting team, the role of the company's CFO has become critically important to the success-and future livelihood-of your business.
The five `Cs'
The company's key financial manager today has moved significantly beyond the former stereotype of a little man wearing a green shade, working under the glow of a dim light bulb in a corner in the back of the building as he scribbles on a green pad. This ``Bob Cratchett''-type character has morphed into a person who must perform the ``five C job functions''-count, control, create capital, counsel and contribute, according to Healthcare Financial Management magazine.
During my career, I've come in contact with a few very bright financial minds. When you discuss different topics with this role within the company, they hold differing opinions. However, they all will agree that their primary function is to ``count'' or account for the monthly, quarterly and yearly financial happenings of the organization.
Providing accurate financial statements is the essential building block task to communicate to shareholders the financial stability of the corporation. Additionally, executive management relies on this information to make directional decisions and to benchmark internally and with other organizations around the country.
Decisions of management to invest or expand investments by growing the business depend on the reliability of these numbers. And let's face it, your ability to get a great commercial salesman and a good tire guy in the town you want to move into also depend on them.
However, think about it.You find the great salesman and his accompanying tire technician, but your financial person grossly underestimates the cost of capital to build a new location, what it will cost to find a nearby warehouse or the cost of marketing in the new community. So you may be forced to close your new operation instead of expand it.
Clear communication of a company's financial picture to managers, shareholders, lenders and outside auditors is critical. Whether your investment audience is a bank, a small group of private investors, the matriarch or patriarch who started the business, or even your own personal savings account, we all have to convince someone to invest in our business to maintain the dealership's profitability and viability.
Control mechanisms designed by the financial manager are the second function affecting a dealership's value. And, of course, they must comply with the Sarbanes-Oxley Act of 2002, which covers financial and accounting disclosure information.
Financial tools like budgeting, variance analysis, project forecasting and measuring to a project's budgeted plan provide measuring controls to minimize unplanned problems. The budgeting process can either be a critically effective or ineffective tool to a company. Your financial manager and top management set the tone for whether this process is a help or a hindrance to an organization.
My favorite budgeting story, told to me a few years ago by someone in the tire industry, seems to be a common one.
``So it's budgeting time and I pulled together my numbers for the region,'' a financial manager said. ``I met with each of my managers and we submitted realistic numbers that were a bit of a stretch but achievable. The numbers guys and top management didn't like the overall number for the company once they rolled them up into the yearly forecast, so they gave them back to us to `redo.'
``Well I found out the `redo' means change them and make the sales and profitability number `look better.' So, we did-THREE times-before they were finally happy. It was annoying, but I didn't care because I thought I would be done with the process.
``But was I wrong! Now I complete a monthly report called `variance to budget.' They keep asking why we are not hitting our budget numbers. I complete the report with some plausible answer-but what I really want to say is, `I'm not hitting my budget number because they are not MY numbers! I'm doing just fine against my prediction!'''
Thus, obtaining realistic numbers through the budgeting process becomes critical.
Another key duty of the financial manager is to comply with Sarbanes-Oxley. I'm old enough to remember the days before those regulations took effect, when discussions often concerned earning ``too much money'' this month and holding it until a month when it was needed-like December!
Complying with Sarbanes-Oxley has become a full-time job in many instances. The CFO's role as it relates to this regulation is critical and should not be underestimated.
The third C, capital, provides the protein that feeds a dealership's growth.
Thus, the financial manager must formulate and manage the basic concerns of corporate finance like meeting the payroll, paying suppliers and having money in the bank when expansion is needed. The financial manager also must manage the short-term and long-term capital needs of an organization.
Regardless of whether your dealership has a team of investors or just your pockets, investors study a corporation's cash flow. If the investors perceive that their investments in the company will receive greater returns than other financial investment options, they/you will continue to invest in the company.
Arguably, the financial counseling function is the comptroller's most important corporate contribution. There are many potential uses for the financial and human resource capital of a company. Left unmonitored, the perceived wants or needs of the employees and executives in terms of compensation, benefits, perquisites, office decorating, etc., can potentially diminish a company's value.
Consequently, the financial manager must assist the human resource manager with balancing the expenses to retain the employees and fund the long-term initiatives that maximize the company's value.
Creating compensation structures that align the employees' goals with the owners' goals become extremely important. Additionally, the financial manager must be able to persuade both the internal and external investors that a company's expansion plan may negatively affect short-term profitability but is essential for long-term company health. This is always a lengthy discussion, as many executive bonuses are based on short-term objectives.
Contribution to the community is the final key role of a financial manager.
One could be tempted to take a shortsighted view of this role and look at it as simply, ``Does the financial manager contribute his or her time and resources to United Way?''
All of the executive's community contribution time seeks to improve the mutual understanding between the community and the company. This knowledge can help a CFO understand which corporate growth plans may prove to be profitable. A less apparent community contribution role is the financial manager's monitoring of the company's approval of a certain percentage of its resources to charitable contributions.
Making a difference in our communities becomes extremely important to a business-especially during these highly competitive times.
The next time you look at your comptroller and wonder what he or she does, remember that person must meet the goal of maximizing company value. The successful financial manager must garner and maintain the respect of employees, management, the board and the financial community to assist all parties in making sound financial decisions that affect company value-and determine whether your dealership will be successful.
So you see, the modern day financial manager is not Bob Cratchett or Scrooge-he or she should be an integral part of your business, one of your key partners!
Mary Miles can be reached via e-mail at [email protected]