Being a CFO and other topics

Not just finance, hobbies too ….

Month: June 2016

Share Buybacks

Share buybacks are simple to explain. It is when the company buys (and hopefully cancels) shares that they have previously issued. The effect is to reduce shares outstanding and thus reduce dilution Andor creates additional demand for the stock while the buyback is in progress through the actual shares being purchased and potentially through a halo effect that the message that the company is buying shares can have on investor psychology and their desire to purchase shares.

The jury is always mixed on share repurchases. In general, they seem to happen more in good times when stock prices are high and seem to be greatly reduced when prices are low. There is no permanence to them. Unlike dividends, share buybacks are always announced as one time transactions with a budget and no promise that more will happen. This give management more flexibility but also gives no real promises to shareholders. Indeed, the actual buyback can be announced but never actually carried out. This is generally not by intent, sometimes there are maximum prices set and the stock moves above that price and nothing is transacted. But it is always possible that the maximum price was set with the intent that little to no stock would be purchased.

There is even a view that the last few years of stock market performance would have been flat without the demand caused by many large buyback programs. These programs also have been a source of supply for the debt markets as some companies borrow to repurchase shares. This makes some sense if much of your cash is overseas and repatriating the cash will cause a big tax bill. Plus the interest paid is tax deductible.

Before I discuss when and how I think you should do a stock buyback, there are plenty of times you should not. The market goes up and down and the same for all stocks. Eventually your stock will go down and if your stock has a fairly high beta, it may go down sharply. When that happens, there will be people that start demanding a buyback, often using the argument that if the company believes in itself, then it should show it by buying the stock. This is a terrible reason to do a buyback. Reacting to short term movements in your share price buy committing to a buyback does not show strength or belief in your company. If you did, you would be confident that the price will recover based on future results rewarding long term holders. Overreacting shows weakness, not strength.

I will be clear on my personal opinion. I think that buybacks have merit but are not often the best choice. I think for most growth or early stage companies they are pretty much always the wrong choice as normally you do not have excess cash and it is much better to spend your cash on internal growth rather than repurchasing shares.

As a general rule, if your share price is low for some reason and you have enough cash to consider a buyback, then first consider any convertible bonds you have outstanding. You might be able to retire debt at below the $1 face value of the bond (which should generate an income statement gain at the same time you are reducing debt) and reduce dilution at the same time. Bonds use the “if converted” method and often are dilutive even if not in the money.

Then, if you have cash on hand that exceeds what you can reasonably use to improve returns of the business and you are not sure it will be recurring well into the future (dividend might be better in that case), you can look at doing a buyback. You should look at the quality of suggestions on where to spend your cash, usually there are only so many good opportunities in front of you and if the quality drops too much and you are not willing to go outside of your existing business lines, then a buyback could make sense. A buyback can also help protect against activist investors. If you let too much cash pile up without doing anything with it, then you can attract activist attention and that is very distracting if it happens.

You will need Board approval to get a buyback done, so you will need to have good arguments prepared. Buybacks can be an emotional issue, so be prepared for some emotional pushback that is not connected to the raw numbers. You also will need a brokerage account and to negotiate the cost of the buy-out. Opening an account can take a little while because of the know your customer rules the banks need to follow. The cost to buy the shares should be pretty small, there are large market makers that do it for pennies on a share, but no real relationship benefit, or you can pay a little more and use one of your investment banks. Shop around a little, it can be much less expensive than you think.

Consult with your lawyers, but you typically cannot start a buyback if you have material, non-public information. That means that you need to commence it during an open window. You can set the share repurchase on autopilot as long as you do not touch it when your window is closed. Normally you do a formal plan where you instruct the broker to buy a certain amount at set prices and they execute. During an open window you can give individual instructions but a set program with pre-established prices is probably the best. Your lawyers can give you more specific advice, but if you do establish a formal plan so you can continue to buy in closed periods, then you should resist the temptation to tamper with it in open periods unless there is an absolutely compelling reason.

Almost every bank will have a specialized program that buys the stock based on volumes and prices being seen. Normally they will try and meet or beat the volume adjusted price every day. A good bank will give you market color and what sort of trading indications they are seeing during the day.

Typically you need to report on the progress of the share buyback on a quarterly basis. Probably no need to do a specific press release on the progress but you might have to formally announce that one is starting and when one ends. Normally you would set the period at one year at a set amount in total value you would repurchase and either announce it in its own press release or prominently in another press release like an earnings release. If you do a little searching on the Internet, it is easy to find statistics that show that actual repurchases typically trail announced and planned repurchases. They also tend to be more active in bull markets when stock prices are higher and less active in bear markets when stock prices are lower. That sometimes gets joked about in the press, but it makes a certain amount of sense. Bull and bear markets usually match pretty well with economic cycles. If you would only do a. Buyback when you felt you had excess cash and more was coming or available on the market, then it is highly likely that a company would start a buyback during a bull market and not start one during a bear market.

The publicity around the buyback often results in the company’s stock price going up, but this is very short lived in my experience. Any buyback would be a small percentage of the shares traded and it is more public relations than an addition of significant new demand for the stock.

My final point on share repurchase programs is that one reason often cited by companies is that they are doing the program to reduce dilution and the dilution often comes from their equity compensation plans. These same companies were ones that argued against expensing employee stock options because it did not cost the company cash.

RPG Nostalgia

I have written two blogs that have discussed my running a D&D campaign using the Fantasy Grounds virtual tabletop software. Dungeons and Dragons is arguably the first fantasy role playing game in the modern use of the term, and it is certainly the most popular. It was an easy choice for me to make as the game system to start using again as the FG software has a license for the D&D rules and there is a lot of already prepared adventures which greatly reduces my preparation time. My friends all played it as well, so it was simply a matter of learning the changes in. 5th edition (the game is pretty much completely changed from the older 1e and 2e we used to play but the concepts are the same).

I started with D&D when I started playing in high school as well, as most people did. For me, that was around 1980 and Advanced Dungeons and Dragons (the first hardcover set of rules) was just being released around then (the first three rule books came out between. 1977 and 1980). The first game I played in was AD&D and the first rules I owned was the blue box rules for D&D as the game was actually split into two branches back then. I slowly acquired the three hard cover rule books and switched over the AD&D by the end of high school. This was a major purchase for me back then as I was paying for it with allowance money and extra cash from delivering newspapers.

Not long after I started CEGEP (community college, the Quebec system splits school into high school, CEGEP and then University), I fell in with a new group of gamers and I brought some of them into my long running campaign and that was AD&D at the time.

One of the most fundamental rules in D&D is the concept of classes. In D&D, at the very start of character creation, you choose a specialty. The basic classes are fighter, cleric (healer), magic user (fragile but lots of damage and utility) and thief (now called rogue). There are rules for playing two classes at once or starting with one and then switching to another, but most people picked one class and stuck with it. This fit many of the archetypes you can find in fantasy books, at least on the surface. Conan is known as a mighty fighter. Gandalf is dressed in wizard robes and casts spells and gives sage advice. Usually the main characters of a fantasy novel do not cast spells and if they do, it is just something on the side as a minor power.

However, this is really not what most of the novels portray. Conan actually spent most of his youth being a thief, climbing walls, picking locks and he never lost that even years later when he was a king and leading armies. The image of Gandalf as just a spell caster fails when you consider that he carried a sword and directly confronted the Balrog with his sword and he was written as fighting orcs with his sword (his ride to Helm’s Deep, for example). The concept of character classes and the other associated choices you made, like alignment, all worked well enough as game rules, but there was a certain hollowness in them. The modern versions of D&D have partially fixed this and have greatly deemphasized alignment to be more flavor than a hard rule to be followed with consequences, but 30 years ago these were deeply written into the rules.

One final thing that was present in the early D&D days is that there was not much published information about the world you were supposed to be playing in. There were scatterings of flavor that could be found in some spell names that were named after famous characters from the formative campaigns that Gary Gygax, one of the main creators of D&D, had run, but the world of Greyhawk that much of this had come from was not really published yet and the main rules were generic. The honest expectation of TSR (the company publishing the rules then) was that the Dungeon Master would just create their own world and adventures. Even today, most of the money comes from selling the rules books, not the published adventures.

During that time, there was no Internet as known today and obviously no online shopping. Almost all RPG products were sold in hobby stores and you made your choices by looking at products on racks in the store. One game system that had come out in 1977 and quickly gained a good reputation was a system called Runequest. I saw it in a store and looked through the rules quickly. There was a mention that the critical and fumble table was inspired by experience on the tourney fields of the Society for Creative Anachronism, and I was sold on the game. I actually cannot remember if I had joined the SCA by then (I joined in 1984), but I had certainly heard of it and that one fact was enough to draw me in.

I will go into a more detail about Runequest, and why is was different than D&D a little later on, but I want to address the current wave of nostalgia for older style RPG games. RPG games have been around in the market since the mid-1970’s and with the publication of the AD&D rules, were very available from 1980 onwards. That means that there is a player base stretching back 40 or more years. The usual pattern is playing during teen years and into college and then in person gaming going mainly dormant once people graduate, the playing groups scatter as employment begins and time becomes much more limited as careers start taking over and first babies start showing up. Some people keep playing along, but many stop playing. I was still actively playing RPG (first AD&D and then Champions) when I moved to New Jersey in the early 1990’s, but that was more of an accident because the SCA group of friends I was part of had a Sunday game that I joined. Once I moved away from NJ and started moving every two years, my RPG time was mostly buying the new editions of D&D and reading the rules and missing playing.

With the long time span of the games being available, many players are now in their 30’s and 40’s (I am about to hit 50). Many have teen age kids that are discovering the games themselves and as a fact of life, by then most people own houses, are more settled and their kids are old enough that they do not require so much time. Online games are fun enough, and games like Warcraft just climbed on the shoulders of the tabletop RPG before them, but there is something missing as compared to playing a more pure pencil and paper RPG.

You can start playing again, like I have, with the newer versions of the rules, but that does not quite capture the feeling of the original games that many of us now play. There was a huge schism and split back when the D&D rules moved from 3e to 3.5e to 4e. Wizards of the Coast (the new owners of the D&D rules) has decided to open up their game much more to the public and had created an Open Gaming License (OGL) that allowed people to create adventures and even rules using the D&D rules as a base. Many people moved over to a 3e clone called Pathfinder during that time, but the OGL actually allowed people to copy even the original D&D rules and create clones of those systems. There was a big movement then which has continued called Old School Revival and the whole thrust is to have games similar to the origins of the rules. Adventure modules are more raw and anyone you meet in the adventure is probably hostile and can be killed. The adventures tend to be classic dungeons that you enter that have traps and monsters in them.

The start of this movement goes back to the OGL and the edition split, but Kickstarter has been like adding nitro into the fuel for it. The main distribution for games that are part of this movement is the One BookShelf, mainly found on and . There, you can buy PDF copies of the rules and adventures to go with the rules.


Available at

I mainly back board games on Kickstarter, but I also have backed two “nostalgia” games. The first is Dungeon Crawl Classics (DCC) 4th edition. The Kickstarter was to reprint and clean-up the existing 3e rules. DCC is not a pure OSR game in that it is not a clone of the D&D rules, but it is very similar to the original rules and it tries to copy the spirit of the way the games used to be played. The other Kickstarter I backed was a reprint of the classic Runequest rules, the same rules I played with 30 years ago. Once I receive the hardcover version of DCC (very delayed from the original promised date which seems to be a constant Kickstarter problem) I will do a review of it, my feeling about Runequest are below,

Runequest is a great variation of RPG rules. What made it very different than D&D 30 years ago (and what still is true) is the fact that there are no classes and that the game system is very tied to one world – Glorantha – which gives the rules a lot more flavor and depth. The system moved from a D20 basis that D&D had to a percentage based system, essentially a D100 which is nominally done via 2 D10 with one being the tens and another being the ones.

Unlike D&D, where you advance in levels and get better at hitting opponents and you hit points increase each level, Runequest has no levels and no experience points. Your Hit Points (how much damage a character can take) is determined by one of your attributes, your Constitution and your HP are spread through different locations of your body. Your armor absorbs damage instead of making you harder to hit. You can, potentially, increase your Constitution and thus your hit points, but you never have that many HP and you don’t get a bigger and bigger pool like D&D gives you.

To be clear, this is just flavor, in D&D you really do not take more damage, your increased HP represent your increased skill to avoid damage that would have killed someone less experienced, but the rule mechanics in Runequest are just more like what you would expect from real life.

You improve attributes by spending money and training. You improve skills by using them successfully which gives you a chance to get a better score. Every character can use battle magic and as you increase your Power attribute you can use more and more.

As the name says, as you grow in experience and power, your character will eventually undertake a quest to get their “rune” which represents their bond to their god and the magic of the world. A character with a rune is much more powerful and is called a Runelord. The game world is set up so that as adventurers increase in power, they start to be able to effect the world in greater and greater ways. It is in the lore of the world that experienced adventurers, like the player characters, were responsible for questing and recovering the dead Sun God early in the history of the game setting.

My group had fun for years playing in that world and using that system. The recent Kickstarter has resulted in a reprint of the rules and the original adventures and city settings that were published back then. All will be available in printed form from . I highly recommend that you give the system a try. If you are like me and need to run your game online as your friends are all scattered about, the rule sets for DCC and Runequest are available on Fantasy Grounds ( . These are community supported rules (an official rule set for a later edition of Runequest is available) and there is little to no already prepared adventures you could purchase, but the VTT itself does support the games.

Self Editing

I have two main forms of social media – Facebook and LinkedIn. Plus wechat, but my time in a China in the near future should be much more limited so I probably will not use it as much in the future. I link my blog entries in all three, two automatically and wechat via manual posting. Because I link my blog to LinkedIn, I try and keep it as professionally appropriate as I think is needed. That does not mean that I am afraid to talk about my hobbies and interests there, but I do limit political and social commentary posts.

It is becoming more and more common for future employers to check your social media. I am not incredibly fond of that, but I understand the reasoning. I also am looking for a new job now, so public image and presentation are important as I want a senior and very responsible position. That means that even if there is a temptation to more broadly broadcast my personal views, I am careful.

It started out with the very first blog I wrote in this site, where I said that I would avoid commenting on China. My reason there is not some abstract self-interest where bashing your hosts is bad manners and some countries can take it even more seriously and put your visa at risk. It isn’t even that solar projects can take a lot of government cooperation and talking badly about the country you want to do business in is bad for business. The reason is simple, I honestly feel that I do not understand the country enough to make a post that is informed. I can talk with confidence about doing business in many countries. I can talk about what happens with standard business processes as you cross country boundaries. I think that if I am going to write something here that my audience is going to spend the time to read, I need to offer something that is relevant and useful. As my mandarin is limited and I have only really spent time in the greater Shanghai and Shenzhen areas, I do not think I can effectively comment on the country.

The same thing applies to many subjects that I see other people discussing online. I see so many obviously misinformed comments on political, legal and business topics that I wonder why the people writing them can say it. Your professional reputation and your reputation with your friends is influenced and built by what you say, and posting online means it lasts forever. Off the cuff and obviously wrong statements cannot help.

One common error is see is some fact or story repeated to make some sort of point. You see the same picture or text over and over and you know it is wrong. A recent example for me was about a tip that Bill Gates and his daughter left where the daughter left a big tip and Bill left a small one with the punchline that she is the daughter of a very rich man but he is the son of a woodcutter. Anyone who cares about Bill Gates other than he founded and was CEO of Microsoft knows that his father was reasonably well off and that he was not a woodcutter. I see memes and stories like that continuously and 1 minute fact checking via Google or would reveal the problem. Before I make such a post, I always check. You want to present yourself as a credible source of information.

Another issue is see is the posting about drug use or other illegal activities. I have it easier as I do not use drugs (without getting into the debate of alcohol and coffee and such which obviously can be considered to be drugs and I do drink them), but I am puzzled at to why anyone would want to advertise illegal activities that they do, especially on professional media like LinkedIn. The pot industry is starting to become legal in some states, and I can see the rationale why people in the industry would advertise it, but I see little upside otherwise and lots of potential downside. This only increases as you move up the ranks.

I made the choice a long time ago to not make my Facebook account my public face, especially for professional matters. So my actual Facebook friend list is small and almost all are actual friends or at least people that share an interest with me that I know personally. When I do want to post on a personal view, I do not post a blog entry, I post a Facebook entry. Now these can be shared by friends on my Facebook and some have super-wide distribution, so it does get broadcast, but it still is a more personal distribution method. I do not have particularly radical political or religious views and my moral center is certainly firmly in suburban middle class, so there is not much danger in even those views being spread, but I would not post them on LinkedIn or here as I automatically link posts in my blog to other social media and because this is a public and freely available site.

Even on Facebook, I think a little before I post something. An example is a post of a picture of a martini glass or a wine glass. I like martinis and I like wine with a meal and I will post a picture to go with a check-in when I go out. Some writers recommend keeping your social media media completely clean of any sign you drink at all and any sign that you go out. To take it to that extreme seems weird to me and I am not sure I would want to work somewhere that takes exception to employees having a normal social life. However, posting odes to ISIS and discussing overthrowing the government is something that would make me pause in a hiring decision. I would think these sorts of things are self obvious not to post, but people do it anyways.

Political views are always a hard area to discuss. Suppression of political views is counter to the spirit of democracy and I hesitate to argue that anyone should not express their views there. It is always a delicate balance, but even CEOs of large companies campaign for specific parties and candidates. I would say be moderate and reasonable in expression of political views and unless appropriate, keep them out of your business public face. The USA is split about 50/50 in political party support and you always risk alienating potential customers when you take a political stance. I would say for any business related so local media, you should treat it like a social gathering where you do not know the people and where normal etiquette dictates moderating discussions on politics as it is not socially acceptable because of the potential conflict it could cause. In your personal social media, I would only suggest that you take a careful look at what you are posting and make sure it reflects your views in a way that you intend to be public. A good rant may make you feel better, but if you consider yourself an advocate of a party or candidate, does it reflect well on them?

Religious views are similar. The social party rule applies. Some people are deeply religious and their faith is very important to them. I think expression of the views should be moderate in business settings as on average most people do not consider it an appropriate place to discuss religion. Personal social media should just be subject to the test before you post of does this post serve my God well and is it in line with His/Her teachings? If you really think yes, then you should feel secure in posting it.

Both politics and religion are very hard subjects. You can find many people saying not to post about it at all, even in your personal social media and I certainly see lots of scolding in social media when people bring it up. Our society will be a sad and bland one if we suppress and self edit such important things. As long as you feel your post is knowledgeable and in good spirit, I would not recommend not posting it. I would suggest that you should consider a private message versus a public posting and if that is more appropriate, but express your views if it is what you feel you must do, even if in public.

Sexist, racist, or overly sexual and graphic posts always will reflect badly on you. There certainly is room for people to make a living posting about these types of subjects, but an external blog site like this is probably the best place to talk about it, especially for business social media where it may not be appropriate at all in pretty much any circumstances. My reasoning is simple, readers need to make a choice and click a link to go read what you wrote and at that point the reader needs to take some responsibility. I think that sexism and racism belongs nowhere, but some people find it even in posts where you do not intend it. I try and write with gender neutral pronouns and business titles, but I slip up every once and a while.

Profile pictures should be appropriate in that they make you look good but are not overly sexualized. I guess if you are a lingerie or bathing suit model for a living or sell those products as your main business, then you can use different types of pictures in your business posts, but in general a vacation picture in a tight speedo is not the best way to advertise yourself for a CFO job. I personally hold that dumb comments addressed at “pretty” or “handsome” profile pictures are the fault of the people making them, not the account owner who puts up the profile picture and those responses are an example of bad decisions by the poster.

The world certainly is more complicated now because of social media and the global outreach it has, but the rules you should follow are really not that much different than the days before social media. Getting drunk at an office party and slurring your speech while kicking a puppy on stage was bad news before social media and it is still bad news. Do a little self editing before such a post is made.

I also see a potential backlash against increasingly invasive practices in screening candidates. If something is actually public already, then there may not be much right to complain, but requests that company representatives be added as “friends” or that private social media accounts be opened up is more than what I think is fair. And social media posts when you were 18 probably are not a good reflection of you at 40, so I see some small sense in the “right to be forgotten” laws that exist in Europe.

Business Partnership

I often describe to people how I have fixed broken teams at places I have worked at by increasing or implementing business partnership. Every once and a while, I get a request to explain what I think good business partnership between Finance and other functions is and what I do to make sure it happens.

First, the whole reason why a good partnership is important is because it amplifies the ability of all of the people involved in the partnership and is a key element in the art of strategy. Strategy, as I have discussed earlier in my blog, is the art of winning ( To go back to the master of strategy, Miyomoto Musashi and his Book of Five Rings, I will show how the importance of people is a main focus of strategy.

From the Earth scroll, there are two important passages:

“The master carpenter learns the structural pattern for building a tower or a temple and knows the construction plans for palaces and fortresses. He builds houses by making use of people. In this way the chief carpenter and the chief warrior resemble each other.”

In this paragraph, Musashi make sit clear that warriors, strategy masters, are very similar to master carpenters as they both employ people to reach their goals and deliver their objectives.

“In using men, the master carpenter must know the qualities of the carpenters. In accordance with their high, medium, or low ability, he must assign them different tasks, such as construction of the tokonoma; of the sliding doors and the shoji; or of the sills, lintels, and ceilings. It is appropriate to have support framing done by those with not much skill, and wedges made by the most unskillful. If one is able to discern the qualities of men in this manner, work progresses quickly and efficiently.”

Musashi continues on this point by saying that the carpenter has to know his people and divide the work being done to the right people based on their skills. If this is done well, then the job progresses smoothly.

And then Musashi concludes on the importance of knowing others in his description of what is to come in the wind scroll:

“Without knowing others, one cannot really know oneself.”

It may sound like Musashi is talking about directing or ordering people around. The master carpenter is the job boss and he assigns and supervises the people working for them as they do their assigned tasks. That does not sound much like partnership. However, when he talks about knowing others, he means it in the same sense that he means all of his instructions. He personally and expects students of his Way to practice and ponder the results of his practice. His life story is not one of a stern general barking orders and expecting obedience. He certainly cared for the people in his life and used them more than just as tools. Even in fighting well with swords, which is the heart of his Way, he tells his students that the Way is more than the tools, more than the swords themselves or however you flourish them.

Building a proper business partnership between functions is exactly like that. It is rooted in helping each other via your personal skills and then amplifying the ability of the whole group to complete your goals.

The foundation for a good partnership is trust and then mutual respect. You cannot enter into a partnership inside your firm without trusting the other people and you need to respect them. The structure of the partnership may exist, but without the proper foundation it will be just a framework with no substance and weight behind it.

In any sort of a company that requires a turnaround, there will be a disconnect between Finance and the other functions. Usually Finance is not part of business decision making and shunted off to the corner as been counters, but sometimes it is the other extreme and Finance is too powerful and everything is being run as a cost center with cost cutting and control being the only goal. Neither way works well and both result in sub-optimal results. You’ll need to bridge that gap and repair any damage done.

The first step is to clear your own mind of the conflict and issues that caused the problem to begin with. It is easy to build an us versus them case in your mind and start getting emotional about it. This does not help. The other parts of the company are all filled with people all trying their best. Put away your heart at war and put on your compassion and brains. Keep your ego in check as you will be. Setting an example for your staff. Go through your staff list and decide who are good fits in experience and temperament with the different business leaders within your company. Meet with your staff and make sure they understand that you are aiming for a partnership and that means they will be working for other functions more directly.

Once your staff understands what you want to accomplish, approach the business or functional leader or leaders you want to partner with and offer them dedicated staff that will work with and for them. Make it clear that they will have a major influence on the annual rating of the Finance staff assigned to them and they will basically become their resource. Make very sure that the assigned staff keep appropriate confidences work for their newly assigned function. Hopefully, if you picked the right person for the right fit, both sides should quickly start benefiting. The function gets access to financial analysis and advice before and while they are making decisions. Finance gets to see changes o the business sharpening before they are complete so that they can be properly planned for and accounted for. It really is a force multiplier when smart people with different skills work together as partners instead of working in silos.

You will know that the partnership is working when two things start happening. First, the business will start improving. By working together on common goals with the spirit of cooperation inside your company instead of defensiveness or unnecessary competition, better and faster decisions will be made. The second thing that will start happening is that you will “lose” staff into the businesses or functions you partnered with. The is about the ultimate compliment and a great recruiting tool because you can show actual progress and growth from Finance not only upwards within Finance but out into the business as well.

I have not had many bad experiences doing it this way, but there are some people that are so closed off that they cannot work with other functions or teams and want to be both secretive and controlling. They can be very difficult to work with and to convince that they should partner with you. It doesn’t matter how hard they make it, you need to. Find a way for the company to win. If the leader is not receptive to partnering, get your staff to try a layer or two down below them. Be friendly in meetings that you are in with the more difficult peer. Regardless of the reception you are getting, you should not be them and set yourself to fight instead of help. Get ahead of the decisions that need to be made and get that leader the information and analysis that you can do to help. Meet in private with them so they do not have to have anyone see them getting advice from you in public. It is not the best situation, but you are one of the top executives and you need to make it work.

Being a partner does not mean abandoning your integrity or not having Finance perform its traditional control and cost control roles. It is about making those objectives important outside of Finance so they are not just Finance goals. It is about embedding your skill set and advice into the company where finance gets to be proactive, not reactive. It is about teamwork and doing what it takes for the team to win, even if you do not get all the credit you may deserve.

It is about winning and making all the people you work with winners too.

Website with an online, free copy of The Book of Five Rings

The Book of Five Rings

Books, either in paper or on Kindle (all links go to

The version I quote here:

The Complete Book of Five Rings

The Complete Book of Five Rings – Kindle version

The translation I first read

A Book of Five Rings: The Classic Guide to Strategy

A Book of Five Rings: The Classic Guide to Strategy – Kindle Version

An account of Musashi’s life

The Lone Samuari: The Life of Miyamoto Musashi

Fictionalized versions of Musashi’s life


Musashi – Kindle version

Samurai Trilogy [blue-ray]

Dungeons and Dragons:Temple of Elemental Evil Board Game Review

This is a review of the board game version of Temple of Elemental Evil. There is an old module version for AD&D, the older pencil and paper RPG version, but this review is on the board game. The board game was released in 2015 along with the module Princes of the Apocalypse, an updated and new 5e take on the original Temple of Elemental Evil module. In an earlier post about business travel I mentioned as a way to find an activity to pass time and this is a typical style of board game you may find at a meet-up.

This review is based on my playing experience with my teen age daughters, several sessions at the local board games meet-up (via and some solo play. The tldnr version of the review is that the game is good and fun and I recommend buying it (handy link at the bottom of the review).

toee game being played

(game in full swing)

Dungeons and Dragons:Temple of Elemental Evil (ToEE for the rest of this review) is a tile and miniatures dungeon exploration game using a cut-down version of the full D&D rules set. You can have up to 5 players with each player controlling a hero in one of five classes. Each hero is represented by their own plastic miniature and comes with a cardboard tile that lists the base abilities of the hero. The five classes are Fighter, Ranger, Cleric, Wizard and Rogue. The Ranger and the Wizard are represented by female miniatures and the cleric is somewhat indeterminate. The sex of the hero makes no difference in the game and all heroes are fully clothed and should be appropriate for people who dislike the stereotype of scantily clad females in the fantasy genre.

The miniatures (about 40 different ones counting the 5 heroes and all the monsters) are well done and detailed, but they are made of fairly soft and bendable plastic and my game arrived with two of them broken. They were easy to fix with a dab of modeling glue (anything that works well on plastic will be fine). I have seen pictures online where they have been painted up and for the most part they are in the same scale as is generally used in tabletop RPG playing, so the game is a fairly cheap source of miniatures if that is something you are looking for. The soft plastic can result in them bending a little (the doppelgänger monster seems to suffer the most from the problem) but they can be softened and reset using boiling water if you are so inclined.


special monstersettin







(Hero miniatures, monsters, special monsters, detail)

I would rank the quality of the components to be pretty high. The tiles and many of the counters and tokens are well printed and thick. The colors are vibrant and they are well printed. The cards are good as well, but since Wizards of the Coast also does Magic the Gathering I would hope so. I used clear card protectors (actually illegal in Magic as small differences in the card back might be seen) so I could see the different card backs.

The storage in the box is so-so. The cards all do not fit once you put protectors on them and the miniatures basically are all tossed into a heap. You can put them back into their plastic baggies but that does not provide much protection. I bought extra bags to hold all the tokens.

ToEE is meant to be run as a campaign where the adventures are run in sequence and the characters you use have an opportunity to improve, but it does not have to be. There are 13 premade adventures. 3 of these are town adventures and 10 are dungeon adventures. Typically you have to either retrieve an item or make it to a specific tile or kill a specific monster to win. The game is a cooperative game, players cannot attack each other (with the exception of the very last adventure that introduces a traitor mechanic). You either win as a group or lose as a group. You lose if someone dies and there are no more resources left in the game to bring you back.

The game mechanics are pretty straightforward. Each turn is three phases which are basically your move, explore, and then run any villains or monsters that showed up and play out any encounters. During your turn, you can move and do one action. The move can be split up before and after your action.

tile stack

The heroes all have the same statistic categories and these are shared with the monsters as well (not all of them, some like surge are heroes only). The base statistics are armor class or AC, Hit Points or HP, Speed, and Surge Value. Each hero card also has a special ability unique to that hero and lists what extra abilities the hero could have (represented by cards). Your AC is how hard you are to hit, the roll on a D20 (twenty sided die), including any modifiers, has to be greater than or equal to your AC for you to be hit or for you to hit a monster (monsters also have AC). Your HP (and monsters’ HP) are how much damage can be taken. When you go to zero you die. Speed is how many squares you can move each turn (each tile is divided up into a grid) and Surge Value is how many HP of damage you heal if you play a surge token (generally limited to 2 in total and used your next turn after you die).  Surge tokens are the resource that bring players back after they die.

hero cardwizard

Each hero is modified by a choice of cards that the hero is equipped with. These are at-will, daily and utility action cards. The cards contain the rules for them. A typical at will card is a weapon or spell attack that will have an attack modifier, damage done, and perhaps other special rules written on the card. Some actions, like daily actions, can only be done once per game.

The goal of ToEE is to keep exploring. If you do not explore, you get an automatic encounter and almost all of them are bad and could damage your entire party. If you kill monsters, you can trade in 5 experience points worth of them to negate an encounter, but encounters are the built in clock to keep you pushing forward.

When you turn over a new tile, there are several consequences that could happen. Each dungeon tile has either a white or a black triangle. The triangles are used to indicate which edge is joined to the tile you just explored from and if there is an encounter created by the new tile. White triangle means no encounter, and black means there is an encounter.

regular tilespecial tile

There are symbols and sometimes names and other features on tiles. Unless the adventure you are playing says otherwise, name and special symbols such as cult symbols mean nothing. Little horse heads indicate monsters (0-3 per tile), Red X means place an upside down trap token there.


Monsters are chosen by drawing cards from the monster deck and the cards have the monster statistics and rules. Each monster also has a miniature to be placed on the game board. Most of the miniatures are well done with good detail and a few are quite large. They certainly add to the flavor and fun of playing the game. Each monster is played by the player that brought it into play and only activates during that player’s turn. The monster cards contain the rules on how to play the monster.

monster and weaponencounter plus treasure

(monster card, hero equipment, encounter and treasure)

There is a lot of dice rolling in the game and there is only one D20 included with the game so I suggest that you toss a few more into the box if you have 3 or more players to speed the game up and reduce searching for where the die has gotten to. Like any game that relies on dice, players can get hot or cold streaks and that can swing the outcome of the game.

Each adventure takes about 45 minutes to play if you have three or more players plus about 5 minutes to set the game up. I was able to explain the basics to new players in about 5 minutes. With. A group of 5 brand new players, several that did not really get the mechanics for a few turns, we played an adventure in about 1.25 hours, but that is the longest we have gone. I played it twice in the regular board game meetup I go to and we won the first adventure and lost the second and the loss mainly was due to bad dice rolls and several very unfortunate encounters that was drawn. The bad dice rolls meant that we did not kill monsters and generate experience points that could be used to negate the encounters.

There is a story that goes with each adventure and the objectives tie to the story, but other than that the story is more flavor than anything else. The game can go for stretches of just killing monsters and gathering treasure.

I would not call it a very deep game, but there are tactical choices to be made. Depending on how well you did, additional (and harder or better) cards are added to the decks and 13 different adventures and 5 heroes to choose from does give it reasonable replay value.

I recommend the game and I think you get pretty good value for the money and most people that like fantasy games and don’t mind dice rolling would enjoy it. If you have a regular group you could play an adventure each session and your characters will advance and improve as you successfully complete each adventure. Because it is a fully cooperative game, it may also help when you have a mixed group with some competitive players and others that don’t play just to win.

Buy the game at



Last week I discussed Credit, today I will discuss the rest of the phrase Credit and Collection. Like the Credit process, how you run your collections process is important and deserves your attention. If you have a good credit process up front, you are probably OK on the reasonable expectation of collection criteria for revenue recognition, but you still need to collect the cash for your sales.

I will assume that you have a good credit process and you are selling to customers with reasonable credit. I will also assume that you have a good sales contract. In place, but I will discuss that in a little more detail. If your credit process is broken, you will have collection issues. That time two months ago when you caved in and said yes to make a quarter even though the customer had bed credit? This is where you face the music and have to deal with the consequences.

Your sales contract and/or invoice needs to make payment terms clear. I mean very clear and spelled out in proper terms. Incoterms or International Commercial Terms is well understood and often used in international commerce. Because these are well understood and legal interpretations are clear, I highly suggest that you use them. Make sure the terms are in the contract and either on the invoice or the invoice references the contract for payment terms. Be especially careful what the customer purchase order says. Many countries defer to the purchase order when settling disputes regardless of what the contract says unless the purchase order says otherwise. It almost can become an arms race where there is a contract, then you receive a “standard” purchase order back that does not reference the contract, then you send an order acknowledgment reaffirming that the order is accepted under contract or invoice terms. Every country is different, so I suggest you consult your lawyer here, but you do need to be careful.

I know it sounds pedantic and overly detailed for the new, strategic CFO, but every company needs cash and you are not going to be able to be strategic if you don’t collect well. Getting the contract done well, even if just contained in your standard invoice terms, is something that can be done well once up front and then just needs a little bit of maintenance and supervision going forward, something that your billing team can handle without much effort from you. I always check this process when I start a new CFO job (applies to Controller as well). If it is in good shape, then I manage on a exception basis. If it is in bad shape, I put a lot of attention to it very early.

One last tip that can help later is to try and preserve title until payment is actually received. You need to be careful about affecting revenue recognition as one criteria is title has to transfer, but a properly worded term and the expectation that you will be paid is normally sufficient. You also need to be sure that it is clear that they are responsible for losses and need to insure the goods.

The next step to good collections is to get your sales force engaged. Hopefully you are already doing all the basic things that build trust and relationship with the sales team (I find adult reviews of expense reports that allow for some discretion and paying them quickly once submitted really helps here.

You need the sales team engaged because they are the ones talking to the customer and doing the negotiations. So if you want something built in up-front, then the sales manager is the one that will do it. If you want a purchase order that resets terms caught, it will be the sales team that sees it first.

I know of two ways to get the sales force to help. The first is training. Take the time to train them in the standard payment terms the company uses and why they are important. Educate them on the main cash flow levers the company has and what the time based cost of money is for your company. Show them using examples just how much a bad debt costs the company. Show them how a side agreement can throw all the prep work and standard contracts out the window. Side agreements are import enough that I will do a blog entry just on them. If you spend time educating the sales force, you greatly increase the chance to get them on board and engaged.

However, this is just not enough. Sales people are very motivated by targets and pay associated with the targets. If their bonus is only based on making the sale, then they will not be motivated to put potential barriers in their own way by protecting the company. You absolutely should tie some of their bonus to eliminating bad debt and collecting the sale. The best way I have found to make sure they are motivated to keep following up with the customer is to only give them credit for bonus purposes when the payment is made. This is the simplest and most direct way to tie their behavior the the company’s hoped for result. More mature companies can also have metrics for bed debt and finding costs for the receivables the sales group creates, but no credit for bonus until collected is the most straightforward.

I get pushback at times from sales managers on this (I always try and stay engaged with the sales team as they are the best and earliest warning system for forecasting and customer feedback). Normally them complain that our harder terms are bad for their customers. My answer is simple, a “customer” that does not pay is not a customer. If I am being less polite to really make the point, I remind them that people that take things without paying are thieves.

I am sure that you have noticed that many of my blogs emphasize the up front process and usually I spend a lot of time explaining what I do to get it right. That is my natural instincts coupled with Six Sigma training. In a factory, the worst process to follow is to inspect quality in at the end and the best is to start with your suppliers so that you receive good quality parts. It is the same for Finance processes. One topic I did not cover here is billing, your invoices need to be perfect or whatever mistake is present will be used as an excuse not to pay, but I will discuss that another time.

I have noticed over the years that you should have very nice, persistent and organized people actually doing the collections. As funny as it is to joke about breaking people’s legs and all the other loan sharks collection methods, people do not like to pay mean, threatening counterparties. All you really can do is threaten to sue and in the USA that is not much of a threat. If there is either a cash flow issue or some form of quality dispute with the customer, they are not going to care about a lawsuit.

What actually works is polite and persistent follow-up. The customer will claim missing invoices, terms being different than what is in the contract, quality issues, moon phases, sun got in their eyes, vacation schedules of people who can sign cheques, pretty much any reason under the sun as a reason for delay in payment. Your collection team needs to document that they were told, efficiently follow-up internally for anything that is under your company’s control and then get back to the customer. They need to sound sympathetic and be very polite about identifying inconsistencies in what the A/P person at the other end is says. Quite often pure embarrassment at being caught in a lie (that is never specifically claimed by your collection staff) can cause the customer to pay.

If your team is polite and professional and keeps good records (CRM is best but a physical file works), you will get prioritized for payment. If there is a real issue, your collection team will find out because the people on. The other side will tell them because of the good relationship that has been built up. Your collections team should either work closely with the credit team or report to the same boss so that you get realtime feedback and can stop further sales if a customer suddenly turns bad. I don’t consider a company being protective of their own cash flow to be bad. If your invoice to them was incorrect then you gave them an excuse not to pay. Anything that you would do yourself needs to be responded to with polite but firm follow-up.

Finally, if a customer does not pay you need to take legal action. Your sales team will protest about relationship, but a customer that does not pay you has already broken their relationship. If you have credit insurance, your insurer may take over this process, otherwise you need to sue. The steps are always the same. First a legal warning letter then you file a claim. You need to get paid, not a future promise of payment after the legal warning letter as you need to move quickly.

By doing what I suggest in this blog, I have consistently been able to deliver industry leading collection statistics wherever I have worked. By spending the time to work more directly with the credit and collections team and build a rapport with the Sales team I have been able to keep everyone happily working towards the goal of getting cash into our bank faster.

Credit Control

I have done a few blogs on some of the more public tasks and CFO has, such as Investor Relations and Earnings Releases and SEC Reporting (where the results of the process are public). This blog is about a process that if everything goes well will remain private because there is no news to report.

One of the functions that normally reports to the CFO is Credit and Collections. I will discuss collections in another blog to come, this one will focus on credit control. The whole basis of credit control is balancing reducing losses from bad debts while not excessively curtailing the ability of your sales team to sell. There is a very natural conflict point here between Sales and Finance (or Treasury as credit control often is a Treasury function, but Treasury should report to the CFO). Sales is motivated and pressured to increase sales. Credit control is motivated and pressured to reduce losses. In both extremes, you can have either no revenue (all sales are denied) or maximum losses (sales are made to anyone regardless of their ability or desire to pay). Obviously no organization wants either extreme.

Before I detail out what I think is important about Credit Control, this is a reminder of why you need it. If you want to recognize revenue on an accrual basis (when the sale is made instead of when cash is collected), the SEC has listed the rolling four conditions that need to be met (SAB 101):

“The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met:

• Persuasive evidence of an arrangement exists,
• Delivery has occurred or services have been rendered,
• The seller’s price to the buyer is fixed or determinable, and,
• Collectibility is reasonably assured.”

The final bullet says that before you can recognize revenue, you need reasonable assurance that it is collectible. The SEC is not often as direct when giving guidance but the four points are very clear. Since then, accounting guidance has echoed those 4 points and all US auditors and most foreign ones use those points. Revenue recognition is a key problem that can lead to either missed quarters or restatements. It is something that a good CFO pays close attention to. It is very damaging to your reputation and the company’s reputation to get this wrong.

The first two things you need to do is to ensure that credit decisions come from a fact based process and that you have a good person with sound judgment leading the team. The two best sources I know of for credit information is Dun and Bradstreet and the credit insurance companies. The other is your company’s experience which is mainly saved by the credit and collection staff but might be in your CRM system as well.
One bad source of credit information is the personal relationship of the sales manager with someone at the client. From the beginning before the credit application goes in to. The. Very end when you do the final rejection as CFO, you will hear a story of what a good guy the client representative and how far back the sales manager goes with them. Sometimes the relationship goes all the way to the top, the sales manager knows their CEO. I have never seen a case where that so called “good relationship” turned a bad credit into a good one. Even if the relationship is real, if the client does go into bankruptcy, the judge can claw back payments made to your company in advance of other creditors. I also have noted that when business turns bad for a company, the CEO is more likely to lie and exploit their relationships than lower level employees.

What is important to know is what the D&B report says and what your collections team says if they have previous experience with them. For example, you may set 30 day terms and the D&B report says that they are often late. If your staff has previous experience with them, they may be able to tell you that they always pay no faster than 45 days but that payment always arrives then. That would indicate that their credit is OK but that you need your pricing to reflect being paid 15 days past your terms.

On average, your credit team should be saying no to cases where there is doubt that the client is trustworthy. If you have 20% gross margin, every bad debt write-off needs to be replaced with 5x the revenue to recover the cost. They cannot say no to everything that is doubtful and there should be some balance struck between an outright no and lower credit limits or a mix of letters of credit, bank guarantees and deposits and pure credit. A good sales manager should be good at negotiating, so they should be able to work something out.

You have to set the right tone with your staff. Some of their decisions will get appealed to you and I have found that the credit team is almost always right. There are times where there is some factor they did not consider, but if you did what I said was important – have a good fact based process and a good leader, then when they say no it normally is justified. Almost always I end up pushing the sales manager to go back and get more security from the potential client. Sometimes I approve the request, but always only when I know something that the team did not know.

A bad reason to approve credit that otherwise would not be approved is because you need it to make the quarter. You’ll just write it off a quarter or two and make that quarter worse plus have people question your judgment.

Credit insurance can help defray some of your risk. If you are exporting, make sure you look into what government supported insurance there is. Many countries have some sort of scheme to reduce risk and will let you recover 70% or more of any loss. Agencies like that also are good sources of credit information and proper practice for the country and maybe even to potential customer. In your home country, you will have to find credit insurance from one of the several that provide it.

When exporting and selling into emerging markets, you need to be very careful when you extend credit. If there is no good rule of law and now ability to enforce contracts or payments, you probably should be requiring an L/C or payment in advance. Many countries have a very bad reputation for paying companies from other countries and in many, you cannot win in court against the “home” advantage your customer has. If you do extend credit, be careful and build up the limit slowly as the customer proves them selves.

As CFO, you have better access to banks and market intelligence than your staff does. Make sure that you communicate with them. A recent example for me was a competitor that also bought our product off of us. I felt that their business model was OK but they were not being run properly and were a bankruptcy risk. I communicated it with our sales leader and our head of credit control. They decided to stop selling to the customer and several months later they did go under. Because I communicated my knowledge, we had no exposure to them.

I wish I was always that good. In one case an Indian customer wanted credit. They were listed in India and not very strong but most of our customers (construction companies) did not have great credit. I had been convinced that extending some credit was OK but our sales leader did not get a good feeling from meeting them in person. He stopped the sale and one of our competitors extended credit and sold to them instead. That company went under and paid no one.

Finally, we were trying to do more business in China where my company’s factories were located. We had a potential customer that was public in China and had a market cap much higher than ours. Typically you get paid by bankers’ acceptances/notes inside China. In this case, the customer offered commercial notes. They were current on their debt and their balance sheet seemed ok. We made a large sale to them and they did not pay the commercial notes off, defaulted on their bonds (pretty much the first in China) and went under. It was an expensive lesson, and we did not makes that mistake again.

And please don’t forget to have your contracts, even your standard sales contracts, reviewed by a lawyer. A poorly written contract can turn a calculated risk into an unexpected disaster.

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