I’ve been fascinated recently with “currency wars” and the ways national governments are adapting. For instance, the United Kingdom and China are entering their own currency-swap deals, and Brazil, Russia, India, China and South Africa (aka BRICS) have recently agreed to set up their own $100 billion monetary reserve and are reportedly dumping their euro reserves.
Closer to home, currency fluctuations hit U.S.-based multinational corporations in 2012 to the tune of a collective negative impact of $22.7 billion in the third quarter alone. The trend continues in 2013, and currency volatility has for the first time grabbed the attention of management at the highest levels in companies. In this volatile environment, the treasurer is working more closely than ever with the CEO, the CFO, the board and the head of M&A on associated risk management.
But how are companies adapting? For one, tech giant Hewlett-Packard, which has approximately 65 percent of its sales outside the United States, addresses the possibility of countries exiting the euro in its risk disclosures. Companies are increasingly trying to understand the potential implications of currency volatility and how to plan for them; the best advice bankers seem to be able to give is to get the paperwork in order and narrow the number of jurisdictions that hedge contracts are subject to. Restricting business to counter-party banks in a single jurisdiction is a smart move, because at least the terms would be consistent.
When, and if, exposure is clearly quantified, identifying the need for direct risk-mitigation strategies that can be controlled and reduced by operational strategies can best be accomplished by answering the following questions: Where are balances kept and in what currencies? Do FX exposures match the respective trading risks? What is the relationship between subsidiaries and the global parent? Are they financed by loans or equity?
JP Morgan, in the recent article “Managing FX Risk: The Challenge of Global Payments,” says the key is to centralize what is appropriate. In many instances, treasury activity is with business units. It is possible to leave the payments with these units (they are most in touch with vendors and suppliers), but centralize everything else. (Fortunately, several global banks now offer easy-to-use technology that allows multinationals to see their FX exposures without the cost of standardizing all their ERP systems or even requiring the systems to be on the same version.)
According to a recent Wells Fargo Foreign Exchange Risk Management Practices Survey of U.S.-based multinationals, companies are using three risk management approaches:
Systematic risk management: hedging a fixed amount of forecasted foreign currency transactions over a specific time period at regular intervals using specific hedge instruments (55 percent of survey respondents)
Active hedging: discretionary hedging of forecasted foreign currency transactions based on market conditions that allows for extending the hedge horizon, changing targeted percentage amounts or using discretion in the hedge instrument (36 percent)
Dynamic hedging: using discretion not only when initiating hedges, but also during the life of hedges (9 percent)
Given the rapidly changing environment, it’s imperative that a multinational’s particular strategy be revisited at least quarterly and openly discussed with the board.
Perhaps countries will one day figure out how to calm currency volatility, and currency wars will be a thing of the past. This month, the Bitcoin 2013 conference in San Jose drew more than 1,000 enthusiasts, developers, entrepreneurs, VCs and lawyers. (I still don’t understand how this decentralized, open-source peer-to-peer digital currency works, but I’ll keep trying.) And at the G8 Summit in July 2009, then-president of Russia Dmitry Medvedev presented a newly minted “test coin” representing a “united future world currency.” Mere mention of this in my circles creates very spirited debate between those who believe we’re eventually heading for a single global currency and those who believe entertaining such an idea is simply conspiracy theory.
One thing is for certain, the monetary policies of the mature and emerging markets will continue to keep the senior leadership of multinational companies on their toes.
Can accountants really do that? Creating the 20th Anniversary Cocktail Collection
There’ve been plenty of times we’ve wanted a drink in our 20 years as finance and accounting gurus to some of Silicon Valley’s fastest-moving companies. So what better way to celebrate our 20th anniversary than with 20 custom cocktails?
Thus the RoseRyan 20th Anniversary Cocktail Collection was born. Since releasing the recipes last week, we’ve been getting questions: “How did you do that?” “Which ones are appropriate before noon?” and “Why wasn’t I invited to the tasting?”
Well, it was an arduous task, which we approached with an accountant’s attention to detail.
The mixing
Fortunately we had connections, and asked the mixologists at the Bull Valley Roadhouse (an up-and-coming Bay Area restaurant and bar) to create 10 original cocktails and 10 nonalcoholic counterparts (these are clearly appropriate before noon; otherwise, you’re on your own recognizance). Their mission was simple: be fun, different, sophisticated; give us some festive party drinks and some we could mix up any time.
The tasting
Jaime Rossini and Kathryn Mussell sent us 24 superlative recipes, so the RoseRyan marketing team had no choice but to spend an afternoon at the Bull Valley Roadhouse in Port Costa sampling each one to arrive at the final cut. (In re: question three—sometimes marketing has all the fun; that’s just how it is.) Jaime and Kathryn told us about the more esoteric ingredients (blackberry shrub, gomme syrup, rhubarb bitters) as they mixed and we sipped, scribbling our impressions on worksheets. We compared tasting notes and winnowed the list down to the final 20 with cool accountant-like efficiency.
The naming
Now we had to name them—a task almost as much fun as the tasting. We wanted clever finance names that didn’t veer into the land of cheesy accountant jokes, so we called in the entire brain trust. The marketing team created a starter list and then called for contributions. Almost 100 names poured in. We narrowed the list and put it to a vote.
Many great names didn’t make the final cut: Double Ledger, FASB Fling, Rev Rec Detonator, Mind the GAAP, Slush Fund, Auditor Exterminator and Fiscal Freeze, among others. Winning names from RoseRyan gurus are the 10K-O, from Miranda Chook; Knock Your SOX Off, from Moira Berman; and Lori Young’s Per Diem.
To find out the rest of the winning names—and most importantly, start mixing—download the RoseRyan 20th Anniversary Cocktail Collection recipe book.
The drinking
To whet your appetite, here’s the recipe for our signature anniversary drink, the RoseRyan Roaring Twenty. Multifaceted, well rounded, easy to love, and of course, orange, this concoction is RoseRyan in a glass:
1 oz vodka
½ oz Cointreau
½ oz sweet Italian vermouth
½ oz orange juice
¼ oz lemon juice
Shake all ingredients in a cocktail shaker and strain into a chilled small coupe glass. Garnish with orange wheel.
Booms, busts and finance upheavals: RoseRyan’s CEO looks back on 20 years
When I cofounded RoseRyan (then known as Macias & Ryan) in September 1993, the Internet was just taking off. The word “global” had a different connotation. Cell phones (if you even had one) were the size of bricks. The “cloud” was in the sky. In many ways, it was a simpler time for accounting and finance.
In the 20 years since, we have weathered two economic downturns and countless changes in accounting rules, governance and oversight. Corporate abuses gave us Sarbanes-Oxley, AS2 and AS5, the PCAOB and the Dodd-Frank Act. Business changed, and continues to change, at exponential rates of speed. We have a truly global economy, blazing technology advancements and exciting new ways of doing business.
This all means that the staid and boring world of accounting has become anything but. We have addressed changes with far-reaching implications in the areas of stock-based compensation, accounting for derivatives, business combinations, fair value measurements, codification and accounting for leases, and we’re now facing brand-new ways to look at recognizing revenue. (FASB promises it will be final any day now.…)
CFOs and their teams have had to step up their game. In addition to understanding and implementing new and complex accounting principles, they are rightfully taking on a more strategic role as leaders in the business. No longer are CFOs expected to be just the keepers of historical financial statements and budgets; they also need to understand their business and market trends, and strategically and systematically increase the value of their company. Not easy tasks, but certainly challenging and exciting in today’s dynamic market.
While the finance needs of Bay Area companies have changed, the fundamentals of RoseRyan’s business have not. As in 1993, in 2013 we are dedicated to attracting and retaining top-notch professionals, and to providing an environment where our consultants are challenged but also able to enjoy a personal life. This allows us to provide exceptional finance and accounting solutions to our clients, giving them the right people with the right skills at the right time.
No matter what the level of their assignment, every RoseRyan consultant rolls up their sleeves to get the job done—and they look beyond the cubicle to provide best practices, advice and objective opinions derived from their years of experience. We call ourselves “gurus” because we strive to be leaders and mentors for our clients and one another.
We’ve worked with more than 700 clients at RoseRyan, and they have made for an exciting 20 years. It has been a great time to work with companies in the technology and life sciences industries, participating in the myriad of changes that have taken place and watching companies go up and down—and sideways. What’s most exciting is that we are often with clients through their corporate life cycle. For example, I started with one client as CFO when they were in an incubator. We shepherded them through two-plus years of fast growth as their outsourced accounting department. We later helped them with revenue recognition issues, stock-based compensation and audit support. Finally, as they neared their exit, we helped with financial forecasting, due diligence and integration with the eventual acquirer. We were with the company for over eight years, and it was rewarding to understand their business, walk with them through the ups and downs, and celebrate their successes.
RoseRyan would not be where it is today without our amazing clients or our consultant gurus. I am very proud of all of them, and I am pleased that RoseRyan helps both clients and our employees thrive. They are a huge part of why I think the Bay Area is a great place to work, to learn, to live. I give heartfelt thanks to all who have made the past 20 years possible. We’re looking forward to the next two decades!
Early workouts and muscle tone keep companies in shape
I have always been active in sports, but as I grow older, I’m starting to experience a few aches and pains. It has made me reflect on the need for an often-ignored element of exercise—muscle development. Without a strong foundation, I could be facing worse physical ailments down the road.
As an emerging growth accounting consultant, I have seen a similar phenomenon with my clients. Small businesses focus primarily on developing products and services and bringing them to market. With limited resources, it’s not surprising that they often neglect the development of their muscles—a solid accounting framework.
But that can lead to problems later on. In finance, as in exercise, future pain and messy (expensive) clean-ups are not that hard to avoid with a little forethought and discipline. Clean, accurate books provide a clear understanding of how your business is doing and support key decisions. If your company requires an audit, you’ll have all your ducks in a row. And you’ll be ready for the due diligence that comes with being acquired or going public.
It’s important to evaluate your infrastructure needs as you grow. A great resource is RoseRyan’s Scalable Financial Architecture, a model that shows what’s needed for all finance functions at every stage, from prefunding all the way through IPO and secondary offerings.
And you never know what’s coming down the pike. I had one promising client that simply ran out of money, and in the eleventh hour a potential acquirer appeared. Our finance team had to jump through hoops in a very short time frame, but the transaction got a green light. This was possible because the accounts, reconciliations and financials were very clean and well documented, all compliance filings were up to date, and no significant risks were identified.
No matter what stage you are in, it is critical to have the basics covered. Here are some fundamental but often ignored areas:
Developing a muscular, basic accounting structure should be a no-brainer, but many small companies push it off until the pain is too much to ignore. As Benjamin Franklin so profoundly stated, an ounce of prevention is worth a pound of cure.
New report: Finding and keeping today’s finance dream team
Competition for great finance and accounting talent—always stiff in Silicon Valley—is heating up as the economy improves and companies ride the waves of ever-shrinking business cycles. Companies are leaning more and more heavily on CFOs to take on strategic planning, resource allocation, capital structure management and more—and they need expertise that can support business decisions at all levels of the finance organization.
Who’s hot? Business-savvy finance pros who understand strategic and tactical financial planning, statistical analysis, M&A due diligence and debt and equity accounting, according to Wanted: Finance Superstars, RoseRyan’s latest intelligence report. And smart companies will be on the lookout for people who are attuned to risks and opportunities, and have experience and communication skills that make them persuasive when weighing in on things like product development strategies, market assessments and cost structures.
So pack your finance team with FP&A pros, right? Wrong. That’s just a piece of the equation. Regulation from the Dodd-Frank Act, international financial reporting standards, tax law changes and a host of other challenges make technical accounting pros a critical part of the finance function.
Likewise, CFOs need to keep their hand on the steering wheel. Bad things happen when their attention wanders from company finances. So although it’s true that CFOs need to get into the operational side of their companies if they’re going to contribute to growth, they can’t delegate their primary responsibility of protecting financial integrity.
In short, a great finance team supports and shapes growth. Check out our report to find out who you need on your dream team, and how to keep your best talent from straying to the competition.
RoseRyan in action: helping a startup navigate growing pains
Imagine this: your company has just moved to a new locale, legal paperwork is stacking up—and so is the accounting, because your books aren’t set up. A big-picture business perspective? Not a chance without details like cash flow and expense tracking.
Helping young, fast-growing businesses with these—and many other—challenges so they can stay on top of hiring, product development, partnerships and other critical business moves is like breathing to us. Check out our latest project profile to see how we helped a high tech startup take accounting off its list of worries, recommended software to support an e-commerce initiative and reeled back some missed tax-benefit opportunities.
And see what else we can do on our startup and emerging growth services page.
Hardware is dead in Silicon Valley. (Not)
A recent PBS documentary on the roots of Silicon Valley was really a story about Fairchild Semiconductor and the birth of the microchip industry. However, over the past 10 years, the Valley has continued to transform, becoming dominated by Internet and software companies like Google and Facebook. Venture capital funding has followed suit: during the last 10 years, funding for semiconductor and networking companies declined more than 70 percent, and Internet funding grew 83 percent.
The semiconductor and hardware companies are still here, but now they are behemoths like Intel and Cisco. Today, many exciting new hardware companies are focused on the consumer. Kickstarter has enabled companies like Pebble and Ouya to raise millions from people directly before actually shipping a product. Venture capitalists are funding consumer product companies like Jawbone and Roku. A new wave of digital health-oriented companies will also be coming on stream. Many are innovating around the changes brought on by the Affordable Care Act and are based on business models that combine hardware devices with software and services.
Let’s face it: we still love hardware, especially consumer products. Products we actually use. We follow new product announcements from Apple as closely as we follow Kim and Kanye or The Voice.
What does the new consumer focus of hardware companies in Silicon Valley mean for finance and accounting teams? We still have the traditional inventory, costing and working capital management issues of the old guard. But teams today need a broader palette of financial skills. Product sales and distribution now include direct end-user sales in addition to online and traditional retail. Finance teams need to understand credit card processing, third-party logistics, outsourced manufacturing and fulfillment, complex revenue recognition and warranty liabilities. Accounting approaches used in mature hardware businesses must evolve to cover new business models that combine hardware, software and services sold across multiple distribution channels.
Cost accounting is still a critical need for today’s hardware companies. But the focus on standard setting, variances and overhead rates is almost quaint now that most manufacturing is outsourced to a contract manufacturer. Today’s cost accounting must reflect more than just the cost to build a product. A holistic approach to profit margins needs to go beyond the traditional GAAP gross margin line. Companies must understand channel profitability, cost per acquisition, advertising and service cost, and technical support to best understand marginal profit contributions.
There may be fewer Silicon Valley companies designing chips today than there were 10 years ago. But hardware is far from dead. It’s right up front, and it’s the whole device, not just the chips. Isn’t that a whole lot more interesting?
Do a rebuilt foundation and embedded values make you more strategic? We think so
Silicon Valley is a great place for reinvention. But sometimes the way to stay successful is to shift your great idea to a different foundation, one that supports even more strategic thinking and sets parameters for risk taking. During the fallow period of the financial crisis, RoseRyan did just that. CEO Kathy Ryan shares her thinking about the changes in four short videos based on material first produced for the Build Network series, Building the Strategic CFO.
How we embed values at RoseRyan
Learn why RoseRyan used the financial crisis to rebuild its very foundation, basing it on an embedded values program that guides employees in day-to-day activities and more importantly, through times requiring critical judgment and risk.
How RoseRyan is preparing for growth
Love to accomplish projects but find it challenging to work on initiatives that require continuous attention? Get over it. We did, launching three growth programs during the recession to be ready when times get better.
Building a stronger team
Want to build a better finance team? Ryan’s top advice for CFOs: make values your glue.
Keys to success
How important is making the finance function highly strategic? Pretty important, especially during uncertain times.
Strategies for smoothing the highs and lows of currency volatility exposure
I’ve been fascinated recently with “currency wars” and the ways national governments are adapting. For instance, the United Kingdom and China are entering their own currency-swap deals, and Brazil, Russia, India, China and South Africa (aka BRICS) have recently agreed to set up their own $100 billion monetary reserve and are reportedly dumping their euro reserves.
Closer to home, currency fluctuations hit U.S.-based multinational corporations in 2012 to the tune of a collective negative impact of $22.7 billion in the third quarter alone. The trend continues in 2013, and currency volatility has for the first time grabbed the attention of management at the highest levels in companies. In this volatile environment, the treasurer is working more closely than ever with the CEO, the CFO, the board and the head of M&A on associated risk management.
But how are companies adapting? For one, tech giant Hewlett-Packard, which has approximately 65 percent of its sales outside the United States, addresses the possibility of countries exiting the euro in its risk disclosures. Companies are increasingly trying to understand the potential implications of currency volatility and how to plan for them; the best advice bankers seem to be able to give is to get the paperwork in order and narrow the number of jurisdictions that hedge contracts are subject to. Restricting business to counter-party banks in a single jurisdiction is a smart move, because at least the terms would be consistent.
When, and if, exposure is clearly quantified, identifying the need for direct risk-mitigation strategies that can be controlled and reduced by operational strategies can best be accomplished by answering the following questions: Where are balances kept and in what currencies? Do FX exposures match the respective trading risks? What is the relationship between subsidiaries and the global parent? Are they financed by loans or equity?
JP Morgan, in the recent article “Managing FX Risk: The Challenge of Global Payments,” says the key is to centralize what is appropriate. In many instances, treasury activity is with business units. It is possible to leave the payments with these units (they are most in touch with vendors and suppliers), but centralize everything else. (Fortunately, several global banks now offer easy-to-use technology that allows multinationals to see their FX exposures without the cost of standardizing all their ERP systems or even requiring the systems to be on the same version.)
According to a recent Wells Fargo Foreign Exchange Risk Management Practices Survey of U.S.-based multinationals, companies are using three risk management approaches:
Systematic risk management: hedging a fixed amount of forecasted foreign currency transactions over a specific time period at regular intervals using specific hedge instruments (55 percent of survey respondents)
Active hedging: discretionary hedging of forecasted foreign currency transactions based on market conditions that allows for extending the hedge horizon, changing targeted percentage amounts or using discretion in the hedge instrument (36 percent)
Dynamic hedging: using discretion not only when initiating hedges, but also during the life of hedges (9 percent)
Given the rapidly changing environment, it’s imperative that a multinational’s particular strategy be revisited at least quarterly and openly discussed with the board.
Perhaps countries will one day figure out how to calm currency volatility, and currency wars will be a thing of the past. This month, the Bitcoin 2013 conference in San Jose drew more than 1,000 enthusiasts, developers, entrepreneurs, VCs and lawyers. (I still don’t understand how this decentralized, open-source peer-to-peer digital currency works, but I’ll keep trying.) And at the G8 Summit in July 2009, then-president of Russia Dmitry Medvedev presented a newly minted “test coin” representing a “united future world currency.” Mere mention of this in my circles creates very spirited debate between those who believe we’re eventually heading for a single global currency and those who believe entertaining such an idea is simply conspiracy theory.
One thing is for certain, the monetary policies of the mature and emerging markets will continue to keep the senior leadership of multinational companies on their toes.
Breakfast seminar: Will your IPO or M&A be everything it could be?
RoseRyan is presenting a free breakfast seminar, “Optimizing Your Liquidity Event: Practical Advice From the Trenches,” on June 12 in Palo Alto.
It will show you how to maximize the profitability—and minimize the pain—of your future IPO or M&A, setting the stage for success by methodically dealing with legal, finance and accounting issues and policies. Topics include:
You’ll also get an unvarnished account of the NeoPhotonics IPO from the company’s vice president and CFO, James D. Fay. He’ll share what worked, what didn’t and what the company learned from the experience.
Our panel also includes these IPO and M&A experts:
Pat Voll, Vice President, RoseRyan: Pat leads RoseRyan’s compliance and ERM practice and has worked on numerous IPOs and M&As.
Yoomin Hong, Vice President, Goldman, Sachs & Co.: Yoomin focuses on origination and execution of strategic and financing transactions for clients in the cleantech sector.
E. Thom (Todd) Rumberger Jr., Partner, Foley & Lardner LLP: Todd focuses on private equity, M&As and venture capital, and guiding Internet, software, telecommunications, digital media and financial services companies through all stages of their growth.
The seminar takes place 8–10 a.m. at Foley & Lardner in Palo Alto. Get details and register here.
Real-time data driving businesses—and changing the CFO role
It wasn’t long ago that real-time financial information was available only to those who worked in companies with expensive data collection and analysis systems. CFOs of less-wealthy companies had to make decisions on the basis of historical information (or hunches, never a good idea). Lacking timely information, they had to forgo decisions that could have increased revenues, improved inventory management or otherwise helped their companies, because in the absence of good information, certain decisions were just too risky. The default was to make no decision, and that’s what most CFOs rightly did—but at a cost to their business.
Today, real-time information is inexpensive to obtain, and the role of CFOs has changed as a result. Having access to real-time information allows CFOs to make appropriate business decisions without the risk that used to exist. Many CFOs are taking advantage of that fact—and nowhere more than in Silicon Valley, where many businesses are driven by real-time data.
I’ve become part of that trend as a consulting CFO for some of the Valley’s up-and-comers. One of them is a social media company with data gathering systems that detail sales volumes and revenues every 10 minutes, 24 hours a day, 7 days a week. The company’s accounting systems allow the executive team to see the financial status of the company in real time, at all times. As CFO, I can access this information from anywhere around the world and help the company make appropriate decisions that will immediately affect its business. For example, if we see revenues dropping, we can instantaneously initiate a promotion, sale or other activity that will drive revenues back to the target, at which time we can instantaneously cease the activity. We can see the drop and recovery all in real time and keep sales on track with the overall business plan.
What I am doing with this company is now the norm in Silicon Valley. We can expect to see more and more CFOs of businesses outside the Valley follow the same path.
The growing availability of real-time data is forcing a shift in the role of the financial executive. Today’s CFOs need to understand where to get the data, how to interpret it and how to use such real-time information to drive a business forward. If they don’t, they risk becoming a statistic themselves.