Taking the Leap

Manufacturing is enjoying a present reemergence, but companies are still faced with the challenges that rapid growth brings. Growth necessitates careful decision-making, and while these are some of the best problems a company can have, it can still be a difficult task to manage growth responsibly and sustainably while continuing lean practices. Smaller manufacturers in particular can feel that struggle and uncertainty as they strive to grow, but without the resources of much larger companies. One solution is moving from an internal controller to a part-time CFO.

Companies that currently get by with a general accounting manager or controller could be unsure of whether having a part-time CFO is worth the increased cost, however that concern relies on an untrue assumption: that a CFO performs the same services as a controller. The truth is that a CFO does much more – where internal controllers look at the present and past, CFOs also strategize and plan for the future. To learn more about how a part time CFO can be advantageous to manufacturers, let’s look at Kessler Consulting, a part time CFO firm based in Wisconsin.

Optimizing the Present, Strategizing for the Future

Rather than reporting the state of affairs, CFOs dig deeper. They don’t just look at what has happened, but also why it happened and how they can better the situation moving forward. For instance, a controller can get an ERP system installed and properly recording transactions, but that does not fully leverage the technology. A CFO can identify the information that operations will find actionable, get the system generating that information reliably, and create a feedback loop which identifies either progress or regression. This process identifies meaningful trends and eliminates mysterious, unexplainable variations.

A CFO has the experience to discern what might not be obvious. This business skill is valuable when the enterprise ventures into new challenging, non-routine endeavors like acquisition evaluation. In one memorable scenario, Kessler Consulting’s team found that a banner year touted by an acquisition candidate was caused by a temporary change in government regulation that briefly opened up a new market. The regulation didn’t last, however, and it would be very unlikely for that revenue stream to become available again. This information dramatically changed the appeal of that purchase opportunity.

With an eye for the big picture, CFOs are apt to have a more calculated approach to problems, rather than a reactive approach. Where a controller may be inclined to send a customer to collections, CFOs look at the whole situation and work towards a solution that results in the company getting paid while still maintaining a positive relationship with the customer.

It’s also common for small manufacturers, “Davids,” to sell parts to large OEMs, or “Goliaths.” The demands that the Goliaths can impose on Davids can be crushing — annual price reductions, consignment inventory, lead time reduction, and more. Where a controller may not have any role in that scenario beyond reporting the figures, a CFO can be a partner in the battle, helping to negotiate mutually beneficial agreements.

The strategic planning process is also enhanced by CFO participation when dealing with “what if” scenarios. With the experience a CFO brings to the table, they can model various opportunities that are being considered and offer comprehensive views of the financial consequences of proposed plans. The models are driven by clearly identified assumptions that all operating managers can relate to: required labor, capital, capacity, and support.

If someone makes the claim that the company is going to grow 20% in the next year, it’s Kessler Consulting’s responsibility to ask how that will happen. What customers are increasing their orders? If business increases 20%, how many new employees will be hired? Will the employees be working more overtime? Does the company have enough capacity, or will new equipment need to be purchased? These answers are often only found by talking with several different executives and subject-matter experts: the President, sales staff, and employees on the floor. Kessler Consulting works with all these individuals to ensure that the models are accurate and the right opportunities are pursued. Once plans are adopted, implementation hurdles are identified and progress can be measured and reported.

Calculating and Communicating

A good CFO not only reports on the numbers of the business, but can communicate effectively with CEOs, Boards, customers, employees, and other stakeholders or vendors. This separates a tactical employee from a strategic partner within the leadership team.

The power of communication shouldn’t be underestimated. It certainly comes in handy for Kessler Consulting when communicating company financials to ESOPs, where the machine operators are part owners. It is also advantageous with navigating the many personalities on a Board or Committee, all vying for different solutions.

While those examples may be matters of convenience rather than necessity, communication is invaluable when working with a top customer and explaining that your manufacturing business must raise prices. That’s a situation Kessler Consulting has navigated before.

“The price increase conversation is one that customers do not want to have,” explains Trent Spear, one of the CFOs at Kessler Consulting. “But our job is to locate and address these issues. If we avoid the hard problems, it’s the company that suffers.” In one particular situation, a manufacturer had a large customer comprising 70% of their business, and was charging them prices that generated inadequate margins. Kessler’s CFO communicated the problem delicately, and was able to increase prices without sacrificing any business and maintaining the CEO’s relationship with their top customer. Is that something you’d send an internal controller to do?

CFOs can communicate more than just numbers. With exposure to the Board of Directors, lenders, customers, suppliers, owners, the CEO and day-to-day operations, the CFO has a unique opportunity to truly understand multiple aspects when differences of opinions arise. With their breadth of experience, Kessler Consulting says those instances are far less daunting than they seem at the surface.

“Everyone wants the best for the company, they are just seeing the situation from different perspectives,” says Steve Kessler, the namesake of Kessler Consulting. Kessler often helps the company move past these differences by drawing on his broad experience and communication skills to help both sides see the others’ perspective, and to help mediate constructive conversations that ultimately make the business stronger and build trust among its leaders.

Expertise and Experience

An important element of a banker’s lending decision is his or her opinion of the individual holding the company’s top financial position. Companies similar to Kessler Consulting can have great credibility with banks. This credibility can be the winning edge for a company with a difficult recent past but a promising future. As part time CFOs serving multiple companies, Kessler Consulting CFOs have more opportunities to facilitate banking agreements than most full time financial executives. Consequently, Kessler Consulting has built familiarity and credibility with a wide network of banking professionals.

Companies that find themselves with an unorthodox opportunity can turn to Kessler Consulting for, if not advice, a reliable contact who may be able to help. This is due to the fact that as a company providing CFOs to many different businesses, and with each CFO bringing with him or her often decades of experience, Kessler Consulting has a wide network of relevant contacts. This network is far wider than most internal controllers would have, and includes individuals and companies in risk insurance, health insurance, human resource consulting, and international business, among other fields.

When speaking with Kessler Consulting and their clients, one theme in particular continues to emerge: the wide breadth of problems they have tackled successfully. Their expertise in finance is assumed, but their problem-solving in other areas make them key players in leadership teams.

Dave Dull, President of Allis Roller, one of Kessler Consulting’s clients, sums it up, “It isn’t just about the numbers. Our CFO from Kessler Consulting understands the complexities of running a manufacturing company.”

In the end, the decisions that a CFO helps to illuminate create leaner operating practices and make companies like Kessler Consulting invaluable to small manufacturers ready to grow.