The odds are tough for any startup. The business model is unproven, and the shift from prototype to product can take awhile. It’s all-hands-on-deck, which can be rough going when the team is so small. On top of that, everyone’s getting used to working together, and no one person is an expert in every aspect of running a business.
The good news: Even the smallest, youngest companies can better their odds when they recognize their skills gaps and seek out ways they can build a strong foundation for the future—yes, even as they struggle with the here and now.
We’ve worked with hundreds of tech and life sciences startups in the San Francisco Bay Area since 1993, and they usually have this burning question: How can we avoid the typical mistakes that startups make in finance?
This is where experience comes in handy. Learning from past mistakes and those of others is a huge advantage. We’re going to let you in on the common financial mistakes we see companies about to make when they’re starting out.
1. Forgetting about finance
Understandably in any startup, getting the finances is in order is not the number-one priority—it’s usually about getting a great product out the door. The finance function often doesn’t get as much love as it deserves in any startup, as the company tries to stay afloat while attracting new customers and investors. This can be a major mistake.
Paying the bills on time and employing one office manager who handles basic bookkeeping is necessary—but not enough. Startups still need savvy CFO skills, even if that’s on a very part-time basis at first, to think through a smart strategic plan, go after sound funding and plot milestones to get to the desired exit. These are strategic decisions, not bookkeeping basics. A company with just a bookkeeper is way behind and moving down a slippery slope.
CFOs and finance leaders model the burn rate and breakeven point, and they bless the sales forecast. Startups need someone who can go beyond the basic transactions and recordkeeping to actually design the financial strategy. Is it time to pivot? It’s better to have a well-formed plan than some reactive disappointments.
2. Overlooking the mantra that “cash is king”
Great cash management is critical in any startup. Everyone has heard this but not everyone quite believes it until they see firsthand what happens when more money is going out than coming in. Startups need to forecast all cash in and out, and manage spikes and dips. That information can change how your company manages business activity. And it means working with the person handling receivables so that collections don’t get out of control. Also make account reconciliations a regular part of doing business—especially bank recons—so you know how much cash you really have.
So we have another mantra worth memorizing: don’t think that P&L equals cash flow. No, no, no. Yes, you need to know your earnings and you need to know what you’re spending, but that’s only part of the story of how your business is doing. You need to track closely what’s going on with your cash balance and what’s moving it up or down.
3. Ignoring compliance
Ignorance is not an excuse that regulators will swallow. The risks are too high to be in denial. You need to get it done. Government intervention and auditor interference can make life downright unbearable if you don’t. And growth could stall as senior leaders get pulled off their day-to-day work to deal with pressing inquiries. In addition to the high stress involved, audits are disruptive to the business, and troublesome findings can result in penalties and interest charges. And there’s also the possibility of losing the ability to conduct business.
Private companies have a less weighty compliance load than public companies, but the list is still mighty long, between tax returns, labor laws, federal and state regulations, secretary of state filings, and so on. Lean on compliance experts who can help the company stay up-to-date so you can focus on your core job—growing the business.
4. Not planning for the future
It’s important to have a solid business plan. Projections are based on real, solid assumptions, not a finger in the wind. They will guide the company going forward while also ensuring that smart practices become a part of doing business. Smart moves include forming some good habits from day one. After all, make a mess in the early days and you’ll be mopping it up for years to come.
Do it right while you can—keep the books clean from the start, and you’ll see the benefits over time (lenders, for one, need to make sense of your finances or they’ll move on to the next business). Being GAAP compliant as much as possible will similarly help you in the long run. The same goes for compensation decisions you make today—If you’re doling out stock or options, invest in a 409A valuation once a year and anytime a major event occurs (such as a significant financing deal). This will help you stay out of trouble with the IRS and ensure that you properly account for stock comp.
The point here is to think about long-term efficiencies rather than just focusing on the short term. An exit strategy might sound like some far-off dream, but it should always be present when decisions get made. When the time comes to go IPO or to make the company look attractive for an acquirer, the work involved is huge—it can be even more enormous and make any deal shaky if lots of mistakes were made along the way. Set your financial processes in place to scale. Think of the long term.
5. Pretending but not really carrying out policies and procedures
Sometimes startups get sloppy about this. Accountants by nature, we’re sticklers for processes and procedures, but we also know these don’t come naturally to everyone. When your business is streamlined and humming along, extra work can be avoided and expenses kept in check. This happens when people know what is expected of them (policies, please!), the company keeps good records as a matter of course, and everyone knows that certain behaviors will not be tolerated.
Policies and procedures do not slow a business down—they actually keep it moving. Keep strong records now—make it a habit—and you’re setting up the company for efficiency.
Companies tend to be fairly simple at the start stage. As the complexities grow, the mistakes that are made in the early days will start to appear. The cracks can soon be crevasses. Trusted advisors who have the financial wisdom and high-level perspective can steer the ship well and head off mistakes before they happen.
RoseRyan guru Michelle Hall loves to help startups with getting their finances in order, meeting their compliance requirements, budgeting and forecasting, and more. Earlier in her career, she held roles at Netflix, Mercury Interactive, American Express and other firms.
Tracey Hashiguchi heads up RoseRyan’s small business team, a dedicated group of consultants helping companies launch and grow. She develops RoseRyan’s strategy, programs and consulting team for helping startups get to the next level. Before joining RoseRyan, Tracey worked at Deloitte.
Chris Kondo is a small business consultant helping companies make strategic decisions to manage their growth and run their accounting and finance functions. His consulting work at RoseRyan has put him in the finance teams at Roku, GenturaDx, Versatis and Lytro. He previously was vice president of finance at Azanda Networks, corporate controller at Chips & Technologies and director of business development at Intel.
Round of applause for Salena Oppus, winner of RoseRyan’s TrEAT Award
Efficient, reliable, respectful and inspiring—those are a few of the words that immediately spring to mind when describing senior consultant Salena Oppus, the recipient of this year’s RoseRyan TrEAT Award, which honors the guru on our dream team who best exemplifies our values (Trustworthy, Excel, Advocate and Team).
The TrEAT Award is a coveted honor within our firm. Our four values are part of our overall culture’s foundation and guide RoseRyan’s gurus as they work together, help clients and contribute to our firm’s overall success.
They’ve helped us form a supportive culture made up of people who consistently go above and beyond in helping clients, collaborate with one another, and are team players in every scenario. The evolution of our cultural journey has enabled us to launch consultant-led initiatives, to have more innovation and risk-taking, to be more open in our communication and to build a stronger community. We have been named a Bay Area Top 100 Workplace for the past two years, and on a national level, we were named a Great Place to Work. These awards are based on employee input and largely reflect our culture and how our employees feel about it.
The large number of nominations over the past year spoke to the common thread that our culture encourages. Each one gave a reason why a consultant should be considered for the award.
“They all described ways that we each live our values each day—how we support each other, support our clients, enhance our reputation in the market and contribute to the growth of the organization,” said RoseRyan VP Pat Voll during a company meeting when Salena was announced as the TrEAT winner by RoseRyan CEO Kathy Ryan.
Salena’s TrEAT prize is a gorgeous hand-blown glass bowl in the shape of an open shell that can be admired as itself or stuffed with special treats.
Congrats to Salena Oppus!
As the ultimate team player in our office and within her clients’ finance organizations, Salena was noted by her peers for being quick to volunteer for projects, expressing her opinions in an honest, straight-forward and respectful manner, and being a creative thinker.
Feedback from our clients demonstrates Salena’s talents in being able to “hit the ground running,” thoughtfully observing client workflows and offering insightful recommendations for streamlining and efficiency moves that the client hadn’t considered. These are qualities we look for in all our consultants, who have the can-do attitude, nimbleness and deep set of finance skills to seamlessly fit in with technology and life sciences companies around the San Francisco Bay Area. Salena becomes an integral part of her clients’ finance teams to solve problems and get the work done.
A well-deserved honor
Salena thrives when helping clients (which have included Nvidia, Onmeon, Netflix and Quantum) reach their goals, and in turn her clients benefit from her enthusiasm, out-of-the-box ideas and problem-solving skills. She can dig into the details and then pull back and assess improvements a company needs to make, such as ways it can make the most of its resources and time.
“She lives the values of honest communication, being reliable, having the courage to say the things that might not be well received, doing what’s right for our clients and, above all, being a good friend,” a coworker wrote when nominating Salena for the TrEAT Award.
The inclination to bring the best ideas forward and be helpful in every situation fits right into our collaborative and supportive culture. “I was so excited when I heard I won the TrEAT Award,” says Salena. “I am gratified that my colleagues took the time to nominate me, as I truly admire and am inspired by their expertise and talents every day.”
As one of those colleagues said, Salena is an “amazing teammate.” Thanks for being a part of our team, Salena!
Like what you see here? If you think you’d fit right in with the RoseRyan culture and you have the right stuff, we’d love to hear from you. We’re always on the lookout for top talent—full-time and part-time. Contact Michelle Hickam at [email protected].
How to amp up your year-end disclosures for the revenue accounting changes ahead
It’s always healthy to take a fresh look at your disclosures and discussions in your annual reports. Situations change, boilerplate language doesn’t always cut it, and changes in accounting policies make it a necessity. This year, more than ever, several drivers make such a review a can’t-miss effort.
A number of new accounting standards are coming down the pike that will significantly change the information you provide. And investors and analysts want to understand now how these accounting changes will impact your financial statements and how you’ll report what is happening in your business.
So, we’re highlighting a few areas to focus on this reporting season, and we’re giving you a head-start on what you may want your related disclosures to say.
The new revenue standard
Arguably, this is the biggest change in accounting we will see in our lifetime—a generational change. Anticipating the shifts companies will be making in how they recognize revenue in the years ahead, the Securities and Exchange Commission has high expectations for your next round of disclosures. They’ll be looking out for the effects the new standard will have on your accounting through what’s commonly known as SAB 74 disclosures.
The SEC said from the start that they expect these disclosures to evolve as implementations progress. The SEC Corp Fin staff is now saying that they are done waiting, and it is no longer acceptable to limit your disclosures to boilerplate “we are still evaluating” language in your calendar Q1 2017 filings (10-Ks, 10-Qs). They upped their scrutiny in this area with Q3 filings and expect to see more robust disclosures for year-end.
Companies that don’t meet these expectations will likely receive a comment letter asking for more information. The SEC enforcement staff has even gone so far to say that they will pursue enforcement actions if SAB 74 disclosures are not robust enough.
So, what should you be saying?
In your footnote disclosures, you should assess the expected impact of the new revenue standard or, at a minimum, provide directional guidance in the areas that are relevant to your business. See below for some examples:
Have you done your diligence with the new standard and believe it won’t make much of a difference? If you expect the impact of adoption to be immaterial to your financial statements, you still need to address it and explain your reasoning. Here’s an example of language you could use:
You should also include facts about your implementation of the new standard:
In your MD&A discussions about the new revenue standard, you should emphasize the future impact of the new accounting treatment:
Other areas to refresh
While the new revenue standard may be the most significant change that you need to address in your financials this year, a few other areas also warrant your attention.
Management’s assessment of going concern
You are now required to perform your own assessment as to whether there is substantial doubt about your company’s ability to continue as a going concern within one year after the date you’ll be issuing your financial statements (so if you file your 10-K in March 2017, you would need to assess your ability to continue as a going concern through March 2018).
If conditions or events raise substantial doubt about your ability to meet your obligations, you need to consider management’s plans to mitigate those doubts if (1) it is probable you can implement those plans and (2) those plans will mitigate the doubt.
Substantial doubt about the company’s ability to continue as a going concern will require expanded footnote disclosures that cover the period through 12 months from the date of financial statement issuance (instead of prior disclosures that focused on 12 months from the balance sheet date).
SAB 74 disclosures for other new standards
Don’t forget, you also have SAB 74 disclosure requirements for other new accounting standards, including:
During this refresh process, keep at the top of your mind the changes that have caught your attention or caused you concern. Provide enough information to investors and analysts to help them understand the significant impacts of new standards on your business.
No one likes to be at the bleeding edge by expanding disclosures before they have to, but don’t be left behind. Expect that across the board, companies will be sharing expanded disclosures about new accounting standards this 10-K filing season—particularly related to the new revenue standard.
You will be the odd man out if you don’t make your own disclosures more robust.
The exact language you use for your disclosures depends on your facts and circumstances, of course. Feel free to contact us if you have any questions about the accounting changes ahead and how to deal with them.
Diana Gilbert, who heads our Technical Accounting Group, has been a member of the RoseRyan dream team since 2008 and has 30 years of professional experience. Frequently tapped for her insights by Compliance Week, Diana excels at technical accounting, revenue recognition, SOX/internal controls, business systems and process improvements.
Top 5 financial mistakes that startups make—and how to avoid them
The odds are tough for any startup. The business model is unproven, and the shift from prototype to product can take awhile. It’s all-hands-on-deck, which can be rough going when the team is so small. On top of that, everyone’s getting used to working together, and no one person is an expert in every aspect of running a business.
The good news: Even the smallest, youngest companies can better their odds when they recognize their skills gaps and seek out ways they can build a strong foundation for the future—yes, even as they struggle with the here and now.
We’ve worked with hundreds of tech and life sciences startups in the San Francisco Bay Area since 1993, and they usually have this burning question: How can we avoid the typical mistakes that startups make in finance?
This is where experience comes in handy. Learning from past mistakes and those of others is a huge advantage. We’re going to let you in on the common financial mistakes we see companies about to make when they’re starting out.
1. Forgetting about finance
Understandably in any startup, getting the finances is in order is not the number-one priority—it’s usually about getting a great product out the door. The finance function often doesn’t get as much love as it deserves in any startup, as the company tries to stay afloat while attracting new customers and investors. This can be a major mistake.
Paying the bills on time and employing one office manager who handles basic bookkeeping is necessary—but not enough. Startups still need savvy CFO skills, even if that’s on a very part-time basis at first, to think through a smart strategic plan, go after sound funding and plot milestones to get to the desired exit. These are strategic decisions, not bookkeeping basics. A company with just a bookkeeper is way behind and moving down a slippery slope.
CFOs and finance leaders model the burn rate and breakeven point, and they bless the sales forecast. Startups need someone who can go beyond the basic transactions and recordkeeping to actually design the financial strategy. Is it time to pivot? It’s better to have a well-formed plan than some reactive disappointments.
2. Overlooking the mantra that “cash is king”
Great cash management is critical in any startup. Everyone has heard this but not everyone quite believes it until they see firsthand what happens when more money is going out than coming in. Startups need to forecast all cash in and out, and manage spikes and dips. That information can change how your company manages business activity. And it means working with the person handling receivables so that collections don’t get out of control. Also make account reconciliations a regular part of doing business—especially bank recons—so you know how much cash you really have.
So we have another mantra worth memorizing: don’t think that P&L equals cash flow. No, no, no. Yes, you need to know your earnings and you need to know what you’re spending, but that’s only part of the story of how your business is doing. You need to track closely what’s going on with your cash balance and what’s moving it up or down.
3. Ignoring compliance
Ignorance is not an excuse that regulators will swallow. The risks are too high to be in denial. You need to get it done. Government intervention and auditor interference can make life downright unbearable if you don’t. And growth could stall as senior leaders get pulled off their day-to-day work to deal with pressing inquiries. In addition to the high stress involved, audits are disruptive to the business, and troublesome findings can result in penalties and interest charges. And there’s also the possibility of losing the ability to conduct business.
Private companies have a less weighty compliance load than public companies, but the list is still mighty long, between tax returns, labor laws, federal and state regulations, secretary of state filings, and so on. Lean on compliance experts who can help the company stay up-to-date so you can focus on your core job—growing the business.
4. Not planning for the future
It’s important to have a solid business plan. Projections are based on real, solid assumptions, not a finger in the wind. They will guide the company going forward while also ensuring that smart practices become a part of doing business. Smart moves include forming some good habits from day one. After all, make a mess in the early days and you’ll be mopping it up for years to come.
Do it right while you can—keep the books clean from the start, and you’ll see the benefits over time (lenders, for one, need to make sense of your finances or they’ll move on to the next business). Being GAAP compliant as much as possible will similarly help you in the long run. The same goes for compensation decisions you make today—If you’re doling out stock or options, invest in a 409A valuation once a year and anytime a major event occurs (such as a significant financing deal). This will help you stay out of trouble with the IRS and ensure that you properly account for stock comp.
The point here is to think about long-term efficiencies rather than just focusing on the short term. An exit strategy might sound like some far-off dream, but it should always be present when decisions get made. When the time comes to go IPO or to make the company look attractive for an acquirer, the work involved is huge—it can be even more enormous and make any deal shaky if lots of mistakes were made along the way. Set your financial processes in place to scale. Think of the long term.
5. Pretending but not really carrying out policies and procedures
Sometimes startups get sloppy about this. Accountants by nature, we’re sticklers for processes and procedures, but we also know these don’t come naturally to everyone. When your business is streamlined and humming along, extra work can be avoided and expenses kept in check. This happens when people know what is expected of them (policies, please!), the company keeps good records as a matter of course, and everyone knows that certain behaviors will not be tolerated.
Policies and procedures do not slow a business down—they actually keep it moving. Keep strong records now—make it a habit—and you’re setting up the company for efficiency.
Companies tend to be fairly simple at the start stage. As the complexities grow, the mistakes that are made in the early days will start to appear. The cracks can soon be crevasses. Trusted advisors who have the financial wisdom and high-level perspective can steer the ship well and head off mistakes before they happen.
RoseRyan guru Michelle Hall loves to help startups with getting their finances in order, meeting their compliance requirements, budgeting and forecasting, and more. Earlier in her career, she held roles at Netflix, Mercury Interactive, American Express and other firms.
Tracey Hashiguchi heads up RoseRyan’s small business team, a dedicated group of consultants helping companies launch and grow. She develops RoseRyan’s strategy, programs and consulting team for helping startups get to the next level. Before joining RoseRyan, Tracey worked at Deloitte.
Chris Kondo is a small business consultant helping companies make strategic decisions to manage their growth and run their accounting and finance functions. His consulting work at RoseRyan has put him in the finance teams at Roku, GenturaDx, Versatis and Lytro. He previously was vice president of finance at Azanda Networks, corporate controller at Chips & Technologies and director of business development at Intel.
Falling off the rails? 6 tips for a smooth transition to your new accounting system
The next time your company undergoes an accounting system switch, will it make your team soar or fumble?
Of course, we dream of success and no one predicts failure when taking on a big project like this, but there is something to be said for expecting the unexpected when technology is involved. We’ve all heard stories and seen firsthand tech migrations and implementations that were painful to experience. We’ve seen the bad ones that left finance teams in the dark, went way over budget and scrambled up timelines.
We’re here to help you avoid such scenarios. We’re often called in as an implementation starts to go astray, to get it back on track. So we have lots of lessons learned in our back pockets. In those cases, companies realize after the fact that proper preparation could have mitigated the mishaps.
At RoseRyan, we’ve worked alongside companies that started out with haphazard implementation strategies before they brought us in as well as companies that put seasoned finance aces at the helm from the get-go.
We’ve helped entrepreneurs outgrow the habit of keeping receipts in a shoebox, and we’ve assisted small finance teams as they adjust to QuickBooks rather than relying on a jumbled mess of Excel spreadsheets. And we’ve brought companies up the tech ladder to solutions like NetSuite, Great Plains, Microsoft Dynamics, and we’ve spoken up for the finance side when a transition to a larger ERP system is in the works.
We’ve stepped in at various stages of these switchovers, sometimes right at the beginning to help guide the way and sometimes in the middle, to pick up the pieces of a project that has gone awry or to offer heavy-lifting during a messy transition.
We’ve seen what can go wildly wrong and what can go just right. Here are the key takeaways for ensuring your next upgrade is smooth sailing:
1. Be realistic about the system you need.
Does your startup look in the mirror and see a muscled-up enterprise? Some dreamy, smaller businesses get caught up and buy solutions that have lots more capabilities than they can handle any time soon. We’ve seen some that pulled the purchase trigger based on unproven sales forecasts. You want room to grow, but you also don’t want to take on a pricey, honking system that you lack the resources to maintain.
Your trusted advisors who know how companies like yours run can skillfully help you make the right call.
2. Conduct some reverse engineering.
If the finance team is increasingly using manual methods to get the reports they need, then change is certainly in order. Would a new system get you closer to real-time information? Could it vastly improve productivity? Can you currently drill down to understand how a particular product is making money (or isn’t)? When the company starts losing visibility, it’s time to look for something more robust and powerful.
A big but: Many times, companies have vague goals and end up with a system that does the exact opposite of what they had hoped for—and users spend more time fiddling around with it than doing actual work, and they struggle to gather the information they need. Before plunging ahead with any new system, give careful thought to what you want out of it and work your way backward.
Who will be wanting the information that comes out of it? The CEO? CFO? Department managers? Compliance and auditors? Build your system with the outputs and users in mind from day one, and you’ll come as close as you can to a seamless implementation.
3. Have finance lead the charge as much as possible.
A common issue is IT’s steadfast claim on any new technology project that comes into the company. We’ve come on board post-implementations long after IT claimed ownership of a project and neglected to get input from the people who will be using the system day in and day out. The result was absolute frustration. At one company, an inventory manager was overwhelmed by a new system that could not help her manage 4,000 SKUs. If she had been asked to give input earlier, she could have preserved some valuable time and avoided agony.
IT surely needs to be involved, but depending on the makeup of the finance team, the controller will need access and editing capabilities from the beginning and a say throughout the process. Finance should operate as a partner with the IT department, not against it and not as a subordinate.
4. Ask the right questions.
Turn to colleagues and trusted advisors who have gone through recent implementations for the questions you should ask your vendor. They can help you express your pain points and determine how you can make things easier for yourself—and your team. So much of a successful tech implementation relies on good communication—everyone involves needs to understand each other, and trusted advisors can help facilitate the conversations to make that happen.
5. Keep your eyes on the clock.
Timing is everything. Many teams aim to make their switchover at fiscal year end—it’s the least expensive and least distressing way to go. However, timelines do often get stretched if whoever is managing the project is inexperienced and not held accountable as the months go by. We have helped companies pick up the pieces of implementations that got off track—including situations where the company lost out on free support from their vendor because so much time had passed. Build in accountability at the start.
6. Raise your hand for help.
If accounting-system switches were an everyday occurrence, finance teams would never get anything done. Thankfully, they’re few and far between. Experts who are more accustomed to transitions than your team and who stay up-to-date on the latest software and know the ins and outs of popular systems can help you make the right decisions and train key players.
They’ll test out the system, shooing away any bugs, and stand in the shoes of finance users. They know the full capabilities of the system and ways it can be customized (for instance, NetSuite can be easily tweaked for customizations, more than many users realize).
Come up with a solid plan, and make room for the unplanned. Hold the project leaders accountable for meeting deadlines (you’d be shocked how often we’ve seen this not happen). The fact is, having to go in and massively fix something later is much more expensive—in terms of costs and time—than getting it done right the first time.
Figure out the right path to take and the smart people to take along with you as early as possible, and you’ll get to your destination efficiently.
Suzy Buckhalter is an accounting problem-solver when it comes to helping fast-growing companies gain efficiencies and grapple their full financial picture. Hear how she helps companies rein in their out-of-control chart of accounts in this webinar.
Ron Siporen, a consultant on the RoseRyan dream team, has over 30 years of experience working with startups, and he has been a successful business owner himself. He loves to help companies clean up problems and scale up for growth. Read his blog post on the rookie mistake that can doom a startup.
Sports and digital technology: When industries collide and amazing things happen
Tech companies are in the business of transformation. They have the ability to transform something we do every day (like how we communicate) and transform entire businesses (back to the business-model drawing board for some folks). This is why it was fascinating to hear about the major impact that digital technology has had on the professional sports industry during a recent ACG (Association for Corporate Growth) meeting in San Francisco.
How technology has intersected with sports was the main topic of discussion by speaker Roger Noll, professor of economics, emeritus at Stanford University, who is an expert in the study of sports marketing and the economic expansion that has transformed professional sports in the past 20 years.
Here are a few statistics he shared that help illustrate how dramatic this industry has changed:
The introduction of digital technology and the enormous expansion of the TV viewing audience have fundamentally transformed the reach and capabilities of pro sports teams, enabling them to enter more households and sell more merchandise. And increase their fan base at every turn. The downside: supply and demand. You still have the situation of a fixed number of teams and 10x the number of TV stations that want to broadcast games. Also, more cities want to host professional teams than there are in existence (something 49ers fans in San Francisco know all too well).
Sports team owners have taken smart advantage of demand. They realized they don’t need to build larger stadiums for additional seating—they can keep their stadiums around the 45,000-seat average—and use a lot of their space for concessions, shopping and arcades. Merchandising and broadcast revenue is where the big money is, and now teams are worth between $1 billion to $2 billion!
Of course, other factors have led to the dramatic increase in revenue, salaries and valuations, such as collective bargaining with the players and shared revenue contracts, but the key enabler was the growth of digital technology and digital media. Advances in technology have expanded how much time we all spent consuming and thinking about sports—and how many of our dollars we give toward it. People today spend much more of their free time watching sports, reading about them or shopping for merchandise.
One of the most challenging and thought-provoking books I’ve ever read sprang to mind when I was at the ACG meeting. Published in 1967, The Medium Is the Massage, by Marshall McLuhan, was packed with ideas that were decades ahead of their time. With his concept of an electronic Global Village and the mass influence of electronic communication technologies, McLuhan predicted the Web and social media over 30 years before they came into existence.
Now when we’re on the move, we can make sure we don’t miss a minute by teeing up the DVR through our smartphone. We can get the sense of camaraderie even if we’re watching alone in our living rooms by sending out real-time reactions on social media. On top of this, we’re living in a time where we can skip the stadium but feel like we’re still at the game through a virtual reality headset.
The transformative changes and the power and influence that technology has had on professional sports remind me of this quote in McLuhan’s book: “We become what we behold. We shape our tools and thereafter our tools shape us.”
What tool is going to shape your business in the year to come? What disruptive innovations, products and trends are wending their way into how your products or services are perceived, consumed and monetized? Some of the leading candidates—the internet of things, artificial intelligence, driverless vehicles and nanotechnology, to name a few—are poised for some transformative effects (not to mention they’ll be multitrillion-dollar markets within 10-20 years). How will these changes affect your lifestyle and your business?
Stay curious, my friends.
Stan Fels is a director at RoseRyan, who joined the finance and accounting consulting firm in 2006. In addition to helping the finance dream team keep their skills sharp and stay true to RoseRyan’s proven processes, he matches gurus to clients in the high tech and life sciences sectors.
Wrangling the evolving enterprise: How finance steers the company through boom and bust
Wham!
The sound of a large public company hitting the wall can be deafening—i.e., a front-page news story or a radical stock drop. Or it may occur slowly, almost silently over time, perhaps from stealthy competitor moves, a slower pace of innovation or hundreds or thousands of employees trying to adjust to strategy shifts and confusing directives. No matter what the reason for the disruption, the finance team, sometimes with the help of outside experts, plays a major role in the enterprise’s ability to dust itself off and reinvent itself for the future.
Big changes at a mature enterprise—growth spurts and turnarounds or spinoffs and restatements—definitely put a strain on finance teams. It’s a time when what’s needed most is tenacity and the ability to shift gears, to help guide the company through the trouble spots and keep it on course.
After all, the finance team plays a critical role in crafting the company’s future. They intimately know the ins and outs of running the company, along with the history. If they are fully staffed with the right mix of talents and skills, they can pave the way for the true business strategists to make sound decisions based on thoughtful, practical analysis of the team’s robust data and intelligence. The team’s wisdom can really influence the decision making.
Coping with growth and complexity
Mature companies need to continually evolve their product lines to survive. It may be time to reach out to new markets—or risk losing market share. The competitive atmosphere changes rapidly, and they must be nimble to adjust to new realities.
One major issue for companies during times of fast growth is finding the talent they need. Companies can bridge the gap by bringing in sharp consultants to help them get through a growth spurt. One-time transactions can knock the wind out of a team and the workload can be daunting. That’s when experienced consultants can be extremely useful to pick up the extra load, manage velocity and augment the staff with specialized expertise.
Coping with a downturn
At some point, a deceleration typically happens. The natural nimbleness of the startup phase is long gone, rapid growth is no longer a given, and the hard-fought battle for the IPO or an acquisition has already played out. A bunch of employees might be heading for the door. A shift in strategy is causing chaos among hundreds or thousands of employees, and there are complex global product lines to manage. Companies trying to stem the tide of departing employees can fill the gaps using interim consultants, such as an outsourced controller, accounting manager, SEC reporting maverick or other savvy finance pro, who can help the business move forward.
This is the mature enterprise stage in the business lifecycle where the ups and downs of staying relevant and gaining ground are challenging. The challenges have grown along with the company’s maturity and complexity. The reporting, compliance and regulatory issues are piling up, along with the ever-increasing demands from the board and investors. The finance team feels the pain firsthand and leads the way by rebalancing the business plan, cutting expenses and extracting efficiencies from every process. The team has years of transactions and data to mine, and sharp analysis and insights are critical to help the company stay afloat and turn itself around.
Consider some of the big ways that the enterprise can fall off course:
Onward and upward
Keeping to the status quo is not an option for companies at any stage. Massive change is inevitable. When it’s time to pivot, the finance team has a chance to shine. By adding in specialized finance experts as needed to help them navigate the tough spots, a company’s finance team can breathe easier. They can together discover the path forward, make the company more efficient and hopefully raise the valuation of the company.
Whether it’s coping with a wild upswing or a dramatic downturn, the finest finance teams move into swift action to get through it.
Not yet at the mature-enterprise stage? See our blog posts on handling the balancing act of the startup, managing through rapid growth and accelerating through on an IPO or M&A deal.
Maureen Ryan, vice president at RoseRyan, heads up business development and helps companies calm the chaos. From meeting with hundreds of companies of all sizes and types, she has seen the emotional rollercoaster of the business lifecycle first hand. Maureen has seen the ups and downs during her early career in various engineering, sales and marketing roles. She’s held positions at Nortel Networks, Bay Networks, Quantum Corp and General Dynamics.
Private equity having a bang-up year: recap of the Western M&A/Private Equity Forum
Optimism wasn’t on the official agenda of the Daily Journal’s recent Western M&A/Private Equity Forum, but it was definitely a common theme throughout the event. Major legal players in the PE industry gathered at the Le Meridien in San Francisco, and it was clear these dealmakers are having a historically strong moment.
I had the privilege of attending the forum and soaked in the positive energy—the group as a whole is extremely optimistic. While 2015 saw $360 billion in deals, this year will most likely surpass that figure and put total deals in the $400 billion range.
This significant volume has been brewing for some time. At RoseRyan, which has many clients engaged with private equity, we have seen PE firms extend their traditional interest in mostly midsize companies to invest in smaller businesses as well as increase their activity in larger corporations. Perhaps there has never been so much firepower on the sidelines due to low interest rates and minimal places to invest.
Although the attendees and panels were optimistic, they did put things in perspective as the shadow of the dotcom and 2008 financial crises does persist. The upside right now is that we’re in an unprecedented time of growth as the following characteristics hold true:
Where is the activity happening? The tech industry is particularly hot right now, of course, particularly considering the trends noted by the forum’s participants. These include:
In this age of uncertainty, when the election outcome is unclear and some businesses are reporting slowdowns, it was great to hear about a highly active market. Most deals are seeing multiple bidders, and participants reported that deal activity likely won’t be affected by elections or the Brexit fallout.
The fact is that companies, particularly in the tech sector, should be proactive as PE firms continue to extend their reach. Savvy companies that are fully prepared for the possibility of PE’s interest will be poised to make the best decisions for their future.
Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting consulting firm’s cleantech and high tech practices. He can be reached at [email protected] or call him at 510.456.3056 x169.
Rethinking revenue and realizing opportunities in the new rules
It’s game time. Deals your company is making now could be affected by the new revenue recognition standard, and the effective date will be here before you know it.
This is why it is so important for finance organizations to actively process the rules, consider the potential impacts and plan ahead. There are opportunities to be realized as well as risks to be minimized—all of which can be done only if the company takes a strategic approach well before the deadline.
The changeover to the new rules is way more than an accounting exercise—reveal RoseRyan finance pros Diana Gilbert and Pat Voll in a new report, A strategic playbook for taking on the new revenue recognition rules. Their guide lays the foundation for how companies can make a smooth, thoughtful transition to the new rev rec standard.
Educate the team: Immerse the key players in the rules and gain an understanding of the big differences. There’s no shortage of analysis and interpretations of what all the changes mean. Look for webinars from sources you trust and get your auditor’s perspectives on the new standard, and share what you find with the key players in your organization.
Spread the love and make it a cross-functional thing: Get other stakeholders in the company involved, early and often. We’re talking about the big R—revenue!—and the changes could potentially impact many functional areas of the company. You want to gain perspectives from key stakeholders and share information—the impacts of the new rules can be huge. There are opportunities to change how you do business, and you want to be sure they’re part of your consideration.
Take the new rev rec rules for a spin: Identify sample arrangements that are representative of how you do business and analyze them under the new standard. You’ll want to understand the impact to individual types of contracts as well as the overall impact to the financial statements. This will help you understand what new estimates you will need make and identify data sources and or systems that you may need to develop.
Do the FASB 5-step: Take your representatives arrangements through the new standard’s five-step process. All the data you gather can be used to develop a model to estimate the impact of the new rules.
Evaluate your options and choose your game plan: Step back and reflect, once the potential impacts become clearer. Changes to contracts and incentive plans may need to happen. So could changes to how you package certain products or even how you fundamentally sell them. This is a big deal.
Normally, implementing new accounting rules impacts only the accounting department. This one is different—the changes to rev rec could change how the company does business. With what little time you have left before the standard takes effect, you need to take advantage of the potential opportunities and thoroughly evaluate your options. (The new standard will be applied to filings starting after Dec. 15, 2017 for public companies—that’s just six quarters away!)
Many companies have a major undertaking ahead of them as they evaluate and adopt the rules. The full extent of the effort should not be underestimated, or you’ll get caught in a painful crunch. The timeline will continue to shrink and so will resources as companies go through their analysis.
With pragmatic guidance and specialized expertise at the ready, savvy companies can avoid mishaps and tap into certain opportunities they might not have thought about before.
Kick off your transition to the new way of accounting for revenue by downloading A strategic playbook for taking on the new revenue recognition. The guide goes through the why, who, what and how of adopting the standard and includes helpful examples of how the rules could affect pricing and contracts at tech and life sciences companies.
A defined culture and a clear strategy: How the two are a “winning” combo
Here’s a tip about growth (we have many up our sleeves): The smartest strategy ever won’t work if the company’s employees are unclear about the execution plan and don’t hum as a team.
At some companies, particularly those bound to crash and burn, senior management and employees operate on divergent paths, not completely understanding one another or what’s going on. They’re muddled by a disconnected culture.
More than 20 years in this business, we’re experiencing the opposite at RoseRyan, united by a defined culture that’s earning its fair share of accolades. We are enormously pleased to have received a spate of fabulous honors that recognize our awesome, distinctive culture, our mix of talented people and our innovative spirit. Wahoo!
Recognized as a high-trust, high-performing workplace
RoseRyan has recently received a new national distinction—we’ve been certified as a Great Place to Work® based on anonymous surveys by our employees. The folks behind the Great Place to Work certification come up with the annual Fortune “100 Best Companies to Work For®” list every year.
Employees rated us highly for management credibility and integrity, high levels of respect and a warm sense of camaraderie, and they are proud to say they work for RoseRyan. They also feel extra effort and great work are recognized.
Scored a spot on the “Top 100 Workplace” list for the second year
The Bay Area News Group has once again included us on their Top 100 Workplaces list. The list is based solely on what our folks say about our leadership, direction and execution.
Our consultants raved in particular about how they know our strategy, understand how we get things done efficiently and how senior managers have a grip on what is really happening at our firm. We have a long-term strategy in place, and everyone is well informed. We’re forthcoming about our plans and keep our employees informed through regular all hands meetings, virtual chats and casual get-togethers.
Founder Kathy Ryan noted as an innovator
RoseRyan founder and CEO Kathy Ryan received honorable mention for CPA.com’s Innovative Practitioners 2016 Award thanks to our in-house developed software application that manages our scheduling, timesheets, skill sets and more behind the scenes. This award recognizes innovations in process, services or technology implementation in accounting firms. Our Dream Team System (DTS) has been spearheaded by Matt Lentzner, who heads our IT efforts.
RoseRyan tops equity list for women
For the second year in a row, we ranked high on a national equity leadership list for the accounting sector. Each year the Accounting & Financial Women’s Alliance and American Women’s Society of CPAs recognize firms with high proportions of women partners and principals in the accounting field. Our executive team is composed entirely of women: Kathy and vice presidents Maureen Ryan and Pat Voll—a rarity in the industry.
Why our culture sets us apart
Since she founded the firm in 1993, Kathy’s mission has been to gather a diverse and really smart, talented group of finance aces who provide outstanding work every time. We hire people based on experience, brains and how well they align with our values. Our emphasis on diversity and working with amazing people are both aspects of our culture.
Grounded by four core values (to be Trustworthy, to Excel, to Advocate, and to be a great Team player), RoseRyan’s winning culture is something that is reinforced and nurtured over the years by a special internal team creating special programs. It doesn’t “just happen” but is the culmination of lots of internally orchestrated effort. Our values are our center of gravity, how we get things done, and how we interact with each other and clients. It’s teamwork and open communications all the way.
Our culture is also one of the main reasons we’re able to attract and keep top people in this time of a war for talent. They like a place that is exceptionally friendly, flexible to their needs on employment arrangements, and is supportive and teamwork oriented. Not many companies are truly this way. It’s quite a feat to create this kind of company in today’s hypercompetitive world.
Like what you see here? If you think you’d fit right in with the RoseRyan culture and you have the right stuff, we’d love to hear from you. We’re always on the lookout for top talent—full-time and part-time. Contact Michelle Hickam at [email protected].
For more about our winning culture, read all about how it developed, in a recent Accounting Today column by RoseRyan Vice President Pat Voll.
Without the right tone at the top, you could be encouraging fraud
Stop us if you’ve heard this one before. A top executive of a public company suddenly resigns. This person had bypassed the company’s processes and procedures to move forward with a huge transaction that really should have been approved or at least communicated to the board. Other mishaps that could have been prevented with proper internal controls have come to light as well.
The stock price drops as the company’s worth and its future are questioned in the days that follow. The information the company has previously put out about its financials faces skepticism.
Such a public scenario is fairly rare to see over a decade after the passage of the Sarbanes-Oxley Act, but companies are at risk if something is off with their “tone at the top.” Set by the board of directors and carried out by senior management, the tone lays out the ethical climate as well as the foundation for internal controls.
A poor tone at the top opens up the company to a higher risk of fraudulent activity. It could feed the temptation or make it possible for someone or some people to successfully do something wrong and not get detected for a while. This is especially true at companies that discourage any questioning of authority.
To stay grounded and preserve a good tone at the top, companies need to do the following:
Communicate often: The board and the senior management team lead by example in the way they communicate. Have an open-door policy and be transparent with what’s going on at the company, with frequent updates, including regular company meetings. Under a culture of communication, employees are less likely to think secrecy is acceptable.
Give internal controls a voice: It’s a topic that should have a spot on the agenda of the audit committee for conducting free-flowing discussions with external auditors when management is not present. Also check in with outside experts on ideas for strengthening the company’s internal controls.
Expect accountability: Make it clear everyone is accountable for their actions and what they observe. Outline expected behaviors in the workplace with a code of conduct and business ethics policy that is revisited periodically.
Finally, a best practice is to have all employees annually acknowledge they have read the company’s code of conduct and send a reminder letting everyone know they have access to an anonymous whistleblower hotline and shouldn’t fear retaliation if they need to use it. SOX mandates that employees who report fraud suspicions are protected, but it’s up to the company to remind employees that the tool is available and that the board and senior management values it.
All of these points are in management’s interest. We were once brought in to help a company after an employee made a report on a whistleblower hotline that unraveled a two-year-old fraud. Six quarters of financial results had to be restated because two sales executives had orchestrated an environment to recognize revenue earlier than allowed under GAAP. Their orchestrations included colluding with the customer to take delivery of product earlier than needed, forged documents and misrepresentations to company management and auditors.
How could the executives get away with it? The company lacked a proper tone at the top. Without this key foundation, companies are in effect encouraging employees to break the rules.
Theresa Eng, a member of RoseRyan’s dream team, is a superstar whether she’s working with a client or rallying her coworkers to volunteer for a good cause. Her areas of expertise include financial planning and budgeting, finance operations, and SOX.
Michelle Perez was honored in 2012 with RoseRyan’s coveted TrEAT Award, which honors a guru who has best exemplified our firm’s values (Trustworthy, Excel, Advocate and Team) throughout the year. She excels at SOX testing and documentation, finance management, general accounting, audit prep and support.