CFO Hacks! Work Clean, Stay Clean

I recently started doing some mentoring at Mass Challenge. It’s wonderfully interesting! I get to meet smart people who have come up with amazing ideas and see if I, in my finance-minded way, can provide them some small assistance to bring their plans to life.

Recently, a gentleman came to see me with a question after my own heart.  They were starting to get some traction, he told me.  More sales, more team members, more suppliers, more everything. How should they work, in general, in order to ensure that as they grew, they would be able to stay on top of everything?

Excellent question! Please allow me to present my #1 CFO Secrets method for keeping it all together (including your sanity) as the business grows.


Some background

First, the origin of this rule. A frightfully large number of years ago, I was employed as a Dunkin Donuts midnight-shift baker.  And while my donuts came out well, my management of the rest of the job was less of a success.  By the end of my shift, the kitchen was invariably a disaster.  The floor and the baker’s table would be thickly coated with packed flour and dried-out dough, the area under the glazing station would be covered with at least a centimeter of gooey glaze and the sink would be chock-full of dishes.

At 8AM every morning, into this mess would stride Big John, the morning baker.  Every morning, he would look around at the chaos, sigh, take pity on me and help me clean up.  And also every morning, he would chide me. “How many times do I have to tell you? Work clean, stay clean!”  That is, the trick to the job was to clean as you go. Eventually, I started to try this out.  Instead of leaving all the cleanup for the end, I started to clean the kitchen in between batches of donuts. At these points, it was indeed messy, but things had not yet had an opportunity to accumulate and get serious. It worked!  Now, when Big John rolled into work, he would find a spic and span kitchen.

Very nice story.  How is this relevant to my non-food-related startup?

If we translate this into a finance, administrative or operations environment, working clean and staying clean simply means that you stay top of the work and don’t allow it to accumulate to the point that the quantity is out of control and has become a huge task, or that so much time has passed that you cannot easily identity items.  This does not mean that you have to deal with tasks immediately, but rather on a set basis where the frequency is sufficient to ensure that the task is manageable.  That frequency will vary from task to task, based on: task complexity (how difficult it is and how long it takes to do), transaction quantity, task sensitivity (potential damage if something is forgotten) and other factors.

How this looks in practice

To give you a better understanding of this concept, here are some examples of tasks, how frequently we address them at my company and the thought process we used to arrive at that schedule. Bear in mind that this is going to vary from company to company.  The idea here is not to say that you should adopt my time frames, but that you should apply the same type of thought process to develop your own.

Task Frequency Logic
Financial statements Monthly We review our books and draft basic financial statements on a monthly basis.  We find that it’s easier to spot and clean up any errors if you are reviewing a single month than if you are reviewing an entire year.  It is also much easier to remember what any given transaction was for if you are asked to identify a few items that happened recently, than if you have to identify a long list of items, many of which took place over a year ago.  For that matter, if you find an error (say, a receipt is missing or a supplier was paid twice), it’s generally easier to get the issue sorted if you deal with it sooner rather than later.

If your company is on the small side, a full set of financials each month may well be overkill.  However if you make sure your banks, credit cards, suppliers and receivables are reconciled every month by your bookkeeper and you review the last month’s activity with your accountant for any incorrect, duplicate or just odd items, that should help you to avoid hours of suffering at year-end.

Option grants Issue in batches and update records immediately From an administrative standpoint, option grants are a massive pain. Apart from having to figure out how many options you want to issue (which is its own can of worms) there is a lot of paperwork involved.  The Board needs to approve the grants.  Employees need to sign off on agreements  and proxies. These need to be scanned or copied, and then filed and copies provided to the employees. Depending on where you are, you may need to notify a trustee or the local tax authority, and this generally involves deadlines.  And, of course, one needs to keep updated records and ensure that the cap table is updated as the number of outstanding options changes.

On the one hand, I don’t want employees waiting endlessly for options. On the other, going through all of the above for one employee? That’s not a good use of time. But if I push it off and eventually find myself having doing all of the above for 50 employees?!  Words cannot express the horror. It happens—every so often there will be a general grant. But where I can avoid that situation, I do.

What I try to do is wait until we have accumulated a reasonable number of new employees and then issue the grants as a batch.  With mail-merge, it’s just as easy to create 10 agreements as it is to create one, but it means that all the other steps—getting Board approval, notifying the trustee or HMRC, updating our records and cap table—are done once and not 10 times.  Using batches instead of one-off grants also means I’m less likely to forget one of the steps; it’s easier to forget about that one, lonely grant than 10 grants.

Issuing invoices to clients Weekly, bi-weekly or monthly The faster the invoices go out, the faster the money comes in.  So your goal here is to ensure not only that all sales are billed, but that invoices are issued promptly.  At the same time, creating and issuing invoices can be surprisingly time-consuming.  You need to find that fine balance between keeping the money coming in and maintaining your sanity.

How frequently you sit down to issue customer invoices will vary based on how many customers you have, the nature of your product, typical billing terms,  how you are managing the invoicing process and other factors.  If you have an Accounts Manager that really owns the process, they may well issue invoices on a real-time basis—even daily.  However if your team is a bit smaller, and the person issuing invoices is also doing five other things, you may be better served by having a set schedule for sitting down, reviewing open orders, checking the status of individual orders, checking individual order billing terms and creating and sending the invoices all at once.

Payroll changes Update payroll records immediately Here is an example of something that is so sensitive that you just do not wait to take care of it. If the CEO sends an email that an employee is to get a raise, our HR manager generally updates the payroll data file immediately.

Why the urgency?  Because the potential damage if we forget to make the change when we are calculating payroll at month end is significant enough (damage to relationship with the employee and erosion of their trust in the payroll process) that the risk isn’t worth any potential added efficiency.

Filing contracts As they are signed/ as I clear out my inbox Today, NDA’s and  supplier and customer contracts are more likely than not to be completed in an electronic format, whether that be through an electronic signature service or just by means of folks signing off, scanning the contract and sending it via email.  These contracts represent the basis for a company’s activity and it is important that they be filed and accessible.  Since there can be a large number of contracts and since filing each generally takes pretty much no time, my practice is to scan and save contracts (for paper contracts)  or download and save contracts (for contracts sent via email) as they happen, without delay.

This is another example of something that I do in a real-time or semi-real-time basis.  In this case, the problem is not one of risk.  Rather, given how easy it is to just download or scan the blasted thing, it is simply more work to track the items that need to be saved and filed and then go back, find the items, and do it, than it is to take care of it on a real-time basis.  In certain cases, I’ll leave them in my inbox during the week and do downloads at the end of the week as part of my weekly inbox cleanup.

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