Sep 23, 2016, 6:00am
Written by Brian Bandell
Many of the biggest challenges businesses face are from the unforeseen events that derail best-laid plans, and it’s the CFO’s job to make sure there’s as little disruption as possible.
Whether it’s a talent recruiting war, economic downtown or contentious election, companies should prepare their financial strategies to survive even the most difficult scenarios. If a company plays its cards right and remains financially strong, it could be in a position to take advantage of the situation when competitors can’t.
South Florida CFOs participate in the Business Journal’s CFO Roundtable, moderated by Nina Lincoff, at the Randstad Professionals offices in Fort Lauderdale.
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South Florida CFOs participate in the Business Journal’s CFO Roundtable, moderated by… more
Ten of South Florida’s top financial officers participated in the Business Journal’s CFO Roundtable on Sept. 8, laying out strategies for navigating such risks posed by economic and political uncertainties.
Business Journal reporter Nina Lincoff moderated the panel discussion. The event was sponsored by Chase Bank, Daszkal Bolton and Randstad Professionals, which hosted the panel in its Fort Lauderdale office.
Retaining talent keeps companies financially strong
Employees show up on company balance sheets as revenue drivers and salaries, but they shouldn’t be treated like line items.
Most accomplished CFOs recognize that retaining top employees keeps companies stable and attracting the best talent gives them the edge over their competitors.
When making a pitch to key employees, a company could fall flat if it doesn’t have the financial goods to back it up. That means more than just salary. The cost to replace an employee averages 21 percent of their annual salary, according to a 2012 study by the Center for American Progress.
Adrienne Arsht Center for the Performing Arts CFO and VP of Finance and Administration Tom Berger said he focuses on total compensation, including salary and benefits such as the 401(k), promoting it with quarterly sessions with a retirement expert. The human resources department provides employees with an annual summary of benefits to make sure they’re not missing out on opportunities, he said.
“As a small company, we can give our employees a lot of benefits free of cost, and that makes them more receptive to working for a small company,” said Alan D. Paley, CFO of Miami-based logistics firm Overseas Cargo. “That and having cross-training for everyone just makes for a happy environment.”
Vantage Hospitality Group recognizes that wages in its industry are generally lower, but the benefits and lifestyle make up for it, said Bernie Moyle, CFO and COO of the Coral Springs-based hotel franchiser. It pays 100 percent of employee health care costs, and offers education benefits. Vantage Hospitality also has a profit-sharing program, so employees benefit directly from the company’s success.
Flexibility is crucial, he added.
“If you have a soccer or baseball game to go to for your kids, then leave work and go to the game,” Moyle said. “If it’s a fun place to be, people stay.”
There are times when he’ll ask people in his accounting department to stay until 10 p.m. or work on the weekend to finish crucial projects, said Jeremy Wegner, CFO of West Palm Beach-based hotel REIT Chatham Lodging Trust (NYSE: CLDT). However, he’ll also give them time off when they really need it. What’s important, he stressed, is that talented employees know they can advance within the company and the compensation will be there.
Ensuring that employees feel valued is key, said Peter Harper, co-president and CFO of Delray Beach-based Twin-Star Home Furnishings. People don’t leave businesses, they leave bosses, he said.
Setting up a challenge can begin during the hiring process. United Data Technologies CFO and VP of Finance James Cline said most of its job postings contain ambitious goals it wants newly hired employees to achieve. People who aren’t confident they can achieve those goals probably won’t respond, he said.
“People who are go-getters will respond to those challenges, and we couple that with benefits that are competitive,” Cline said.
Doral-based UDT posts job listings in key markets around the country whether it has open positions or not, Cline said. That’s because it’s always good to establish a connection to top talent, and sometimes a great employee should be hired, even if there’s not an open seat, he said.
“If someone has got a skill set that is valuable to the firm, it’s worth talking to them because there are always ways to move things around,” said Adam P. Klein, CFO of West Palm Beach-based Blue Sea Capital, a middle-market private equity firm.
CFOs guard against economic turmoil
The U.S. economy has benefited from modest growth, despite troubles in many corners of the globe, but most business executives know that what goes up must eventually come down.
The Great Recession officially ended in June 2009, although its after-effects were felt for years afterward, especially in South Florida. Florida’s GDP growth of 3.1 percent in 2015 exceeded the national rate of 2.4 percent. The state continues enjoying population growth and more jobs.
Yet, many executives who were in business during the past decade remember that the economic headwinds can shift virtually overnight. And when things go sour, South Florida always seems to suffer more than most regions.
A crucial part of a CFO’s job is to make sure the company guards against an economic downtown or the loss of a key business constituency.
Bernie Moyle, CFO and COO of Coral Gables-based Vantage Hospitality Group, compares his job to when he played safety on the football field. Just like he always kept his head on a swivel, making sure no receiver ran behind him, Moyle now watches for signs of financial risk that management might have missed.
Since his company sells heaters and fireplaces, it’s one warm winter away from a bad market, said Pete Harper, co-president and CFO of Delray Beach-based Twin-Star Home Furnishings. Because it sells furniture, home sales have a big impact on its business. It must also consider the level of competition from those that sell its products such as Home Depot, Lowe’s and Costco Wholesale.
Harper said he tells the sales team to send him their assumptions about the market, not a spreadsheet with numbers.
Sometimes the risk comes from a place that’s not on a balance sheet. On Sept. 4, South Korea-based Hanjin Shipping filed for bankruptcy protection, causing major delays in worldwide cargo shipping. Most ports refused to accept its ships, which carried cargo from thousands of customers.
If his company has something on the water with Hanjin, it’s probably not getting there when it is expected, said Mark S. Walter, CFO and senior VP of Boca Raton-based tool manufacturer Q.E.P. Co. Fortunately, his company works with many different suppliers and logistics companies.
“We need to look at how we spread customer risk and supplier risk,” Walter said. “We have to have a backup supplier and a backup shipping source.”
Alan D. Paley, CFO of Miami-based logistics firm Overseas Cargo, said he had to find alternative trade routes to keep goods flowing after Hanjin filed for bankruptcy.
Understanding the makeup of a company’s customer base is also crucial, said Lourdes Pineda-Garcia, senior VP of financial services at Hollywood-based property management firm FirstService Residential. Anything that hurts the health of the customers would certainly impact the company.
That’s a lesson sellers of Miami condos to Latin American buyers learned the hard way this year.
Diversity of funding sources should also be considered, said Adam P. Klein, CFO of West Palm Beach-based Blue Sea Capital. For instance, an equity fund could raise capital through high-net-worth individuals, but they could be one-and-done investors or could be impacted by the economy. It’s important to foster relationships with reliable sources of funding, such as institutional investors, Klein said.
R. Scott Lentz, CFO of Miami-based electronic medical records company CareCloud, said he was shocked earlier this year when the venture capital market dried up and the so-called unicorns stopped investing in emerging companies.
“We were out raising a Series C round in the first quarter this year,” Lentz said. “I have been doing this for 20-plus years, and this was, far and away, the most challenging venture capital environment, when the opposite of a unicorn is a very low multiple.”
That’s why, when a team member proposes a big idea, often with a significant price tag, CFOs must really do their homework and know the potential upside and downside, said Tom Berger, CFO and VP of finance and administration at the Adrienne Arsht Center for the Performing Arts. Every decision must be backed by analytics.
“By taking that risk, it stops you from doing other things,” said Jeremy Wegner, CFO of West Palm Beach-based Chatham Lodging Trust. “Sometimes your job as a CFO is to stop people from chasing squirrels.”
Even if a company stays on a straight and stable course, a recession is as inevitable as a hurricane in Florida. The question is how well a company is prepared when the time comes.
To guard against a slowdown causing too much disruption, Moyle said Vantage keeps middle management lean so the positions it staffs are crucial to operations. There wouldn’t be much room to cut.
“If people know there is a slight hitch in the economy and their job is at risk, then they get nervous,” Moyle said.
During the last recession, he said, the salaries of both executives and staff took a hit, but the executives got their money back last. He made sure the employees knew that.
If a company is well prepared, a recession could uncover great opportunities for growth. The key is maintaining cash liquidity, Klein said.
“You can see something that didn’t hit the market before,” he said. “An entrepreneur who was living large making $10 million a year is now making $3 million a year in the business and doesn’t know what to do with it.”
Financial executives wary of political shifts
There’s been much bold talk in politics in this election year, and some of these proposals could have significant impacts on local companies.
Of course, talk is just talk. The last few years, Congress has been lampooned for how few laws it’s passed, as partisan fights have tied up legislation. Even crucial funding to deal with Zika was held up.
Company leaders can’t afford to sit on their hands and wait for the election to be over. Yet, it can be risky to invest in a system that could be overhauled by a new president.
Blue Sea Capital CFO Adam P. Klein predicted four years of deadlock, no matter who wins the presidency. However, the SEC will continue coming down harder with regulation.
“It could be hard either way, or nothing could happen,” Klein said. “In my opinion, nothing will happen.”
Both parties have major changes proposed for the tax system, but presidential candidates have pitched drastic changes for years and little has happened. Until Congress agrees to change the tax code, the country will be on the same path, no matter who is in the executive office, said James Cline, CFO and VP of finance at Doral-based United Data Technologies.
“There will be gridlock,” he said. “For businesses, that will be OK. It won’t be good for the economy long term because we are headed for the wrong place.”
Mark S. Walter, CFO and senior VP of Boca Raton-based tool maker Q.E.P. Co., said he’s concerned about the anti-trade talk in politics because free trade policies are crucial for many companies, especially in South Florida. He hopes the next administration doesn’t create more tariffs to stifle trade.
“If the government can stay out of the way and let the private sector do its job, that is the best,” said Pete Harper, co-president and CFO of Delray Beach-based Twin-Star Home Furnishings. “Tariffs would be a problem. Don’t mess around and create uncertainty for business.”
One thing Bernie Moyle, CFO and COO of Vantage Hospitality Group, would like to see Congress tackle is rebuilding U.S. infrastructure such as airports, roads and bridges. That would create jobs and make businesses operate more efficiently, he said.
Don’t overemphasize the executive branch because the president’s overall impact on the economy is about 10 percent, Moyle said.
Moyle goes to Washington, D.C., with the American Hotel & Lodging Association for a few days every year to meet Congress members and make sure they understand what issues are important to his business.
“You’ve got to get in front of your congressional representatives and tell them your story,” Moyle said. “Otherwise, they are not focused on it. When you say, ‘I am one of your constituents and this is how it impacts my business and my employees,’ most of them listen.”