|Taking Start-Ups to Profitability|
Interviewed by Olivia Wolak
Interview with John Lafferty, Interim CFO, COO
|Date Interview: 03/12/2010
Date of Credentialing: 03/26/2010
Credential expiration: 07/01/2011
What is the main focus of CFO-Pro?
To take entrepreneurs and small business owners to the next level. I’m in the business of extending the operating lives of CEOs and their small companies. Today I’m starting to focus on emerging technology companies to make sure they stay on track financially and have adequate funds to back their growth.
My focus is to take entrepreneurs and small business owners to the next level. I’m in the business of extending the operating lives of CEOs and their small companies.
Give me an example of a company that you helped grow.
I worked with Bill Lederer and Art.com to monitor his cash burn. My role there was to keep the financial plan moving forward. As things changed, I would adjust the projections. There were a lot of venture capitalists interested in that company and watching the numbers. Eleven months after Bill started the company, Getty Images made him an offer. The company sold for $115 million. I love working with entrepreneurs who have a great idea and are going to build a company out of it.
You started your career working in venture capital.
After spending 11 years at Arthur Andersen on the audit side, I moved to Heizer Corporation, which was the company that institutionalized the venture capital field. I worked as a financial services manager. I moved on from there to private industry, serving as a financial guide to small companies.
When did you decide to move into interim roles?
Along the way I did some freelance financial consulting, and in April 1996 I started my own practice. It has developed over the last 14 years from being Lafferty Business Coaching to Lafferty Financial Management into CFO-Pro.
It sounds like you’ve developed experience across various industries.
I think the best decision I made was to keep moving. I’ve had a lot of experience from public accounting to venture capital to industry consulting and I guess I love change. When things didn’t look like they were moving in the right direction, I made changes.
What’s the biggest challenge working with start-ups?
To get them to understand that they need a financial plan, and that they need to monitor it.
A very inspiring bunch, but not always financially disciplined?
A lot of what I do is educating the entrepreneur as to what his numbers are telling him and what the trends are. It’s fairly easy to converse with entrepreneurs because I understand how they think and what they’re striving for. I’m not the kind of guy to say, “that’s impossible,” but I’m going to tell them what they need to get in place to pull it off.
How do you figure out an entrepreneur’s thinking?
I ease into a conversation of who they really are. I get a feel for the way they think, why they got into this business and what makes them stay in this business, what they really like about it, where they feel they need help, and then transition into formulating a plan to help them.
What do you typically analyze to formulate this plan?
Historical numbers including the margins, both gross and operating, to see how they are trending as you move forward. I also use a 12-month trailing tool. If I find sales and margins leveling off or trending downward using the 12-month trailing average, I know that something has changed in the way the company is doing business. It really pinpoints the month where it happened so that we can dig right into it and not wait until the year end to sort it out.
Monthly average overhead. How is it changing and is there a good reason for it? If you’re in fast growth mode you probably also have to look at the ratio between overhead and sales as you’re moving along. I also analyze the balance sheet. Where’s the cash? Are receivables getting out of hand? Is inventory growing too fast?
Tell me how you were able to increase the equity of Peoria’s Jumer Hotels and Casino Rock Island 40 percent in 18 months.
They were a privately-held hospitality organization. When I first came into the company as interim CFO, the company was heavily leveraged. They were just starting to expand into riverboat gambling. You had to be able to keep the occupancy level up from the operating side and make sure you watch your pennies on the cost side so you have a bottom line number that can produce enough money to pay interest on debt and have some left over. I worked with each of the hotel managers to help them better understand their numbers. It really was a matter of keeping everybody on track and watching the financials.
What do you do better than anyone else in the world?
My expertise is factual analysis and forward-looking financial projections. Am I better than anyone else in the world? I don’t know, but I’m damn good at it.
Let’s talk about another one of your financial projects. You were brought in as president of Professional Property Management.
It was a small company owned by a real estate broker. They had a number of properties under management, but not enough to make it a worthwhile business. We had to figure out what kind of manpower was needed to take care of properties brought into the group.
What did you do to make the business “worthwhile”?
Recruited employees, re-priced services, revisited and improved operating procedures, and attracted new business through a new marketing plan. The end result was cash flow turned positive.
It’s fairly easy to converse with entrepreneurs because I understand how they think and what they’re striving to do. I’m not the kind of guy to say, “that’s impossible,” but I’m going to tell them what they need to get in place to pull it off.
You also have had some experience investigating fraud?
I worked for The Brenner Group as a senior consultant before I started my practice. There were court cases involving $100 million in manufacturing/construction fraud overlooked by auditors and lenders. The fraud within the company started at the top with the CEO and went down into the accounting ranks. It was very difficult to uncover, let alone analyze.
What was your role in the case?
I led a team to develop the testimony for CPA liability cases related to the fraud. As most of these cases go, the insurance companies keep paying claims under the professional liability policies until the parties decide to settle. The case never went to trial. No good comes out of those types of actions and the only reason it exists is because they’re going after deep pockets.
Any insights for someone starting out now as an interim exec?
I think that through it all I’ve really learned to just shut up and listen. I think you need to get people to understand what you’re trying to achieve and give them some basic direction on how to get there, but then let them do their job. Naturally, it’s going to take a bit of oversight, but you can’t hover over them and constantly be on them. They may have as good a mind as yours, so you have to let them run with it.