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Episode 33: Should Companies with Slow Revenue Growth Automate Their CFO Offices?

Frank Mastronuzzi Frank Mastronuzzi

Chief Financial Officer & Managing Partner

Madhurima Gupta Madhurima Gupta

Associate Director- Product Marketing

HighRadius

Available on

Synopsis:

With declining business growth, CFOs need to take proactive measures to keep their business afloat. New-age technology is no longer nice to have but imperative to stay on top of business metrics and effectively utilize resources amidst new challenges in 2023 and beyond.

In this edition of the CFO Circle Podcast, we talk to Frank Mastronuzzi, Chief Financial Officer & Managing Partner, of Punch Financial as he discusses how businesses can manage declining growth trends at the office of the CFO.

Transcript:

Madhurima Gupta:
Welcome to the Mid-Market CFO Circle. I’m Madhurima Gupta, your host, and today I have with me a very special guest who’s gonna share his experiences with us about how growing companies and even companies with declining growth can automate CFO’s office. Now, before we get into introductions, I’d like to set context, now for all businesses. Growth is one of the core objectives, bigger profits, higher sales. Why does geographical coverage helps businesses achieve growth and generate more income for its shareholders and employees? However, there are few businesses whose growth doesn’t always go as expected, and in some cases may even halt completely. Today we are going to discuss how businesses with stagnated growth trends or declining growth trends can manage their CFO’s office with automation. And in order to talk about this, I have with me Frank Mastronuzzi. Hi Frank. Welcome to the show.

Frank Mastronuzzi:
Hi, how are you?

Madhurima Gupta:
I’m doing well. Thank you so much for taking time and having this conversation with me.

Frank Mastronuzzi:
I’m excited to be here, so thanks for having me.

Madhurima Gupta:
Great. Perfect. So Frank, you know I’d like to introduce you to our listeners as well. So I have a small introduction that I’d like to get started with. And, you know, at the end of it, we can also talk about how your growth has been in your career. And a little more. Frank is one of the most trusted CFO consulting in bookkeeping partners for startups and high growth companies. He’s currently the chief financial officer and managing partner at Punch Financial. He’s also the acting CFO at Sanas. Frank has helped a fast growing company scale their companies from inception to growth stages. Beyond the strategic role as a strategic CFO, he’s also revenue focused and hands on financial advisor. So, Frank, what, in your opinion, or how have your experiences made you into the person that you are today that has helped you become a financial, a trusted financial advisor?

Frank Mastronuzzi:
Good, good question. All the experiences that I had, you know, as a traditional accountant, you know, working for Deloitte and cpa in both New York and Chicago offices then internal audit at Motorola, then got my MBA and did my first startup got lucky, right? Happened to be a company called match.com that people know. And so that’s where I got addicted to the startup space. But all those, all those experiences, both internal external audit working with a startup in, in the, in a finance capacity selling mutual numerous completing numerous m and a transactions gives you the full experience of, of taking a company from inception to exit. And the more you have that full experience, the, the, the, the better it is to advise and help other folks to do it. So I think all my building blocks of my career have led me to the ability to help high growth companies accomplish their goal, right? And so I think having done it internally, externally, and, and also having done it myself from, you know, beginning to end, it makes it a very makes me a very seasoned, experienced CFO to help our, our clients navigate the same process.

Madhurima Gupta:
And you know, in your experience or you know, what you might have seen from your peers, what causes a business’s growth to stall? And what role can a CFO play to help in in such scenarios?

Frank Mastronuzzi:
Great, great question. I always liken growth to spinning. If you’ve ever seen those guys spinning the plates, right? You have to keep, you spin the first plate, you spin the second, but then you have to go back to the first to keep it spinning. I say that companies so that they don’t stall in their growth trajectory, because I experienced this, that match, when you rely on one channel for sales growth and it’s, and it’s working, that’s great. But at some point, all channels kind of, you know, plateau or, or, or run into problems. And so you need to have multiple plates spinning back to the analogy, right? And so when I see startups that are focused, well, you know, tick’s working, whatever it is, whatever the channel’s working and when they’re only relying on one channel, then, then I’m always concerned. So my, my argument is you need to test a bunch of different channels. You need to spin up different plates and know where things work. And cuz it takes a while to figure out what works and what doesn’t. So you have to start all those right in, in, and I say like, you know, the analogy of throwing a spaghetti against a wall, you have to throw a lot of spaghetti against the wall, see what sticks, and then, you know, now narrow your focus to two or three, but know that you can tap into those other levers. Cuz what I see a lot is that, you know, a lot of companies then will plateau because they’re focused on one sales channel. Whether it’s B2B sales, a sales team, you know, if you don’t have a multiple pronged, a multiple pronged approach to customer acquisition, you will stall how the CFO can help that as this ask those questions, right? You know, you wanna let the marketing customer acquisition and sales team do their jobs, but haven’t seen this across hundreds of companies. We can give them advice and make sure they’re not relying on any one channel because by the time you can spin up a second or third channel, it’s too late. You’re going to have a plateau of your revenue, which is really bad in the, when you’re selling the story of growth, growth, growth to, to raise that next round, right? You gotta, you can have plateaus, it happens to all companies, but you have to be able to solve that, that problem quickly and keep the growth trajectory. Yep. Hockey sticks don’t exist. I’ve never seen a company grow as expected it just doesn’t happen cuz it’s a real world. But you can, can be as prepared and testing all along the process so that when you need to pull, what I say, pull a lever to get more, you know, growth you already know what levers you can and cannot pull.

Madhurima Gupta:
Absolutely. You mentioned real world, Frank, right? And today, the real world, the real markets are volatile, right? There is inflation, there is recession when even if it is a mild one, we expect to have it right? So this is going to, you know, have a lot of businesses see, you know, slowed growth, which will of course affect their, affect their cash flow, right? So what according to you should be on top of their priority list to be better prepared for all the challenges that may come their way.

Frank Mastronuzzi:
I hear that, and I, and I agree that there’s obviously the markets are all sending signals and indications that there’s going to be a downturn. But with startups and early stage startups, right? You know, the early stage investors are investing for two or three years down the road, which would be outside the window of any recession typically, right? My advice is, you know, we’ve, we kind of expect, we’ve seen this in the last even 2007, 8, right? The covid everyone thought Covid was gonna, like, we all wanna brace and prepare for the worst, but yeah, expect the best. I don’t think there should be necessarily a huge in with early product market fit. I don’t think there should be a lot of maybe you know, reduction in revenue for a lot of startups during this period. During covid, a lot of our startups boomed and, and they weren’t, you know, there was also a, that wasn’t expected, right? The boom, everyone thought it was gonna be a retraction of business and there was a boom instead. And so people, you know, a lot of founders felt guilty cuz they were hearing all these other stories of companies that weren’t doing well. And the ones that were doing well felt, you know, had some sort of guilt factor. But, and we all, all of our clients went through same thing we’re doing right now. What does a reduction in budget look like, right? And, and, and also the indications that are happening with the layoffs. A lot of the tech companies, other companies are starting to think, well, if Google and Twitter and all these others are starting to do it, then we should do it too, right? It’s almost kind of a reactionary thing. My advice is, especially for early stage startups, that the, the most costly expense is payroll. So only add team members as needed and it was a, you can do a clear delineation of what their job responsibilities are and so that you’re growing and adding head count as needed versus, oh, you know, the biggest mistake we see all the time is, Oh, I just raised $6 million, let me go hire a hundred people, right? Like, you know, justify the growth and, and add the positions to where they’re actually adding or reducing what i, I like to say as a bottleneck. So if there’s something that’s slowing us down because we don’t have staff or resources, or we could grow faster by adding more sales people then throw the money there, right? So to me it’s, you know, the recession’s there, but it’s almost like, don’t make it become a self-fulfilling prophecy. I don’t see a lot of our companies, even though we’ve done the belt tightening exercise they’re still hoping for the best, right? And how do we deliver and how do we continue to grow? And, you know, maybe we add headcount on a contractor basis or part-time basis instead of the full headcount, right? So I always say, you know, prepare for the worst, hope for the best. Because what we’re seeing is a lot of companies that have scaled back then don’t have the staff when the growth continues, right? So you gotta be, you gotta be smart on that. And so I would say, you know, to the exercises to know where you would need to cut expenses and where you should if wherever you starts to dip, but don’t, don’t take, you know, drastic actions without knowing what the true impact is going to be to your Revenue.

Madhurima Gupta:
That as a treasurer or a bookkeeper or receivables manager what are the steps that one should take to streamline CFO’s processes depending on the different kind of business growth they see?

Frank Mastronuzzi:
Correct. So, I’m big on if you look at any of my presentations or, you know, that I’ve done for the, the accelerators like 500 or Techstars I’m big on putting an infrastructure that will scale with your business because nothing’s worse than growing really fast and then midstream during that growth period, you have to change systems, right? Erp systems, whatever it is, there’s enough technology out there that you can work smarter, not harder and we do that with our team, but we like to add technology in as needed, not just because we’re adding technology, but to solve a problem. So, you know, we’re big on having systems that can scale to your next, say your, you know, your, your, your projections are out three years and at to 50 million, then are these the systems? What are the systems that would also get us to those, to those markers, right? So that we’re not caught unprepared. And so we like using technologies that are also flexible, that can fit process changes, so like Airtable is a great example of a, of a, of a tool that can be customized to fit the process. And as a startup grows and changes cuz processes change as you scale, you can, you can customize the technology to solve for that. So the things we like to use are, you know, cash flow management tools like bill.com and FP & A and modeling budget versus actual tools like a finmark, right? We like these tools that allow our teams to analyze their, you know, their KPIs, their metrics, their dashboards, and allow them to run the business. Because as I say, it’s like flying a plane, like an accounting to, to pilot for some reason. You know, there’s a lot of technology you can use, but you still need the manual intervention when there’s subject to interpretation, you know, the FASBs, the ASCPA stuff. But the more you can use technology like machine learning in QuickBooks, which we see, you know, there’s great machine learning and QuickBooks, but 99% of the clients we see don’t use machine learning until we show them, right? So there’s tools and, and, and technology that are already there that aren’t being utilized. We like to utilize the systems that exist to their fullest, right? And so that’s becoming more educated in, you know, certified in and into it in QuickBooks or Zero or, or NetSuite or whatever it is, so that we understand what the system’s capabilities are and can do. And so that they’re scaling with you. And, and, and implementing those systems at the right time is important, right? Because if you have to pull out, you know, quick buzz and implement, you know, NetSuite or, and Erp, it’s very, it could be very disruptive to the business. So timing it during you know, an inflection point, right? You know, or transitioning over, you know, the beginning of the year and doing a dual track, right? So you’re doing QuickBooks and NetSuite until you’re ready to switch, right? So there’s a lot of technologies out there. It’s just about spending the time. We spend a good 20% of our time meeting with new startups and new technologies and new service providers to see if there’s a fit, right? You have to see what’s out there and who’s, who’s doing what and what’s cutting edge and that can help you. So we do a lot of new product testing and sampling and, and demos on behalf of our clients because if one client could use it and benefit from it, then we know that 150 clients could benefit and use and, and benefit from it.

Madhurima Gupta:
And, you know, you talked about how people upgrade from one erp do the other depending on what their requirements are. And you know, of course digitization has become a mandate for CFO’s office in 2022. And I, I think everything accelerated because of pandemic. But there is still a dilemma that exists, right? And which is whether they should, or whether a CFO’s office should accelerate growth through digital initiatives or preserve and restore organization’s financial health by cutting costs. And, you know, with, you know, uncertainty in how a company’s expected to grow, how should CFOs take the decision to accelerate investment in technology?

Frank Mastronuzzi:
Good question. It’s a very delicate balancing act, right? Because without growth you can’t continue to, you know, raise more capital, grow the team, get to the next level. But I definitely feel that that’s what’s, you know, back to your earlier question, that’s what’s changed in the marketplace. But along as time, you know, Silicon Valley and, and other places really promoted growth, top line growth at, you know, don’t worry about cost, don’t worry about profitability. I definitely feel like those days are long gone. And you’re seeing that play out and examples of like Twitter and other companies that are still not profitable and public, right? The market’s really starting to beat them up and, and say, Okay, you’ve had a long time to get profitable. We really like to implement good in what we call traditional accounting methodologies and, you know, really helping the, the founders understand their gross margin. Because without a healthy gross margin, you can’t build a profitable company. Now you can discount, you know, when the early days you need a discount, cuz you know, the market doesn’t know who you are, they’re taking a gamble on you. And so, but I, we like to price that out at the normal rate. What we think we’re going to charge down the road, show the discount, right? So the market understands that we’re, we think we can get 5,000 a month, we’re discounting it to a thousand because we need to grow and, and get, convince people to take a chance on our SaaS product, our, our platform, whatever it is, right? So from our perspective, you have to have the mechanics and the levers there built in so that you’re going, you can be profitable. Trying to figure out how to get profitable later is a really, really slippery slope, and it’s hard to do it successfully. So we say build in, you know, target margins, you know, of 60% plus on gross margins, right? So that you know that you can have a profitable company as you scale and step up on the SG and A. To me, there’s gotta be a balance because if it’s not accretive to the bottom line or ROI positive, then you shouldn’t be spending the dollars, right? If, if, if you’re spending dollars and customer acquisition in sales, but the LTV or the, you know, the return on that spend takes three years to get there, you know, you’re not gonna have unlimited cash as a lot of the startups, you know, used to think, right? As long as you keep growing top line, we’ll get more cash. That’s changing, right? It’s gotta be street smart growth, profitable growth, right? You could choose to reinvest that profit into growth, but it has to be very clear in that that’s what you’re doing versus your margins are, are are razor thin or non-existent, then that’s then, then, you know, if, if venture or investment dollars are subsidizing every revenue dollar, then that’s, that’s a very bad position to be in, and to try to change. So investing in technology and platforms, right? So that you’re, you know, once you invested the capital and building the technology that you can resell, right? So my match.com days, once the dating platform was there and we got all the partnerships driving traffic and exponential growth and profitability because the cost to deliver the platform was already paid for and built, right? And so we just needed to get more traffic there and that was our goal. And, and it had to be able to do it, meaning the system had to be able to handle this. The, the volume of traffic and scale. We see that a lot where, you know, they think they can handle it, then success happens and the site crashes or the, or the app crashes or the service gets stuck. So to me it’s quality growth too, right? You can’t grow at all expense because if the quality’s not there, then you’re hurting yourself on a branding perspective.

Madhurima Gupta:
The other thing that comes to my mind when we talk about growth and managing you know, cash at hand better is the credit risk that comes with doing business with different vendors, right? So how in, you know, today’s economic climate, how can CFOs strike the right balance in handling credit risk and growth in the business?

Frank Mastronuzzi:
So there’s a lot of things you can do in that front, right? And there’s a lot of actually startups that are trying to solve that problem on credit risk, right? So the traditional, you know, D& B done in Brad Streete and those kind of, you know, management tools to manage credit risk, but if you’re also working with other startups, then they don’t have the history. Although we really push all of our startups to start building up their own D&B history and making conscious effort to build up a credit rating for themselves. We do a couple things. One, one we really like to build, and even in our own business, we auto ach our, our fees to our clients before the work is done, right? So that we’re not chasing, we used to have to chase AR, we don’t chase AR if the payment doesn’t clear the work’s not done. So there’s no AR right? It’s very clear on that. I think you know, over covid and a lot of things, there was a lot of trends. I like to say net 90 is the new black, right? It was net 15, net 30, net 45. A couple things we like to say, you know, change it in your terms and conditions to get paid up front or negotiate the rate. If you’re dealing with a big company, say like Disney or someone where you don’t have the bargaining power to, to negotiate the net terms, a lot of them have programs where if you discount, they’ll pay it faster. And the discount is well worth, you know, the cost of capital. So we really reach out and start asking if they have programs that can accelerate for a discount. And if they don’t, we offer it a two. The other is the squeaky wheel gets the oil right. We, if you’re not chasing and asking about, we found if you’re not, you know, sending follow up invoices and statements and collection notices and reminders, it can be positive, then, you know, then they don’t think you need the money. And so they’re gonna pay other things first. We like to be proactive and it has it having an outsourced firm like ours, we can do the calling on the client and the customer and so that there’s not a negative connotation with that where it’s an outside accounting firm so they can keep a positive, you know, good cop bad cop relationship as I like to call it, right? We can keep asking like, Hey this invoice is now net, you know, past 90 days past due. There also has to be controls into not continue to dig the whole deeper, right? And we see a lot of startups don’t have that. I think if a client goes past net 60 then, you know, no additional sales should happen until we’re we’re current or again, depending on the client, right? Depending on their, if the, if the payment history there is like Disney, then you know you’re going to collect it. There’s other things you can do to help that, right? So we we don’t like the factoring, the f word is bad, factoring. But we do see there’s a lot of businesses out there that are even strategically focused on specific industries to help pay pay, take a discount, pay the invoices for, you know, if it’s, if it’s a set kind of customer, there’s firms that’ll pay you for that invoice and then wait to collect the difference, right? And so they make a, they make a a margin on the, they pay you less than what your receivable is. So there’s a lot of tools we like to get it, set them up from the get-go, even in go as far as look at the terms and conditions and the agreements and to make sure that the sales team, if something’s changing and we’re using their net terms that we clearly sign off and agree, and it comes to finance. So we say, if it’s anything over net, you know, net 30, you know, let a, it needs a finance approval, right? So that we’re aware of what’s going on so that we can manage cash flow. But it is a big issue right now as going into this downturn or recession people are starting to slow their payments, slow, their, their cash burn. And so we’re seeing it become a chain, a chain effect, right? Where we’re starting to see that, which means other companies are now paying slower, which means it’s becoming a vicious cycle and it is starting to happen and we see it on a regular basis. So, very good question.

Madhurima Gupta:
So then, in your opinion, right, with all the economic volatility that exists today, the million dollar question, even if you are seeing slow growth or declining growth at your organization as a CFO, should you be investing in CFO office automation?

Frank Mastronuzzi:
Well, I think it should always be investing in CFO automation. The, the challenge is you can be effective and have an effective accounting and, and FP & A and finance team very lean, You know, we’ve seen companies, you know, upwards of a hundred million with a lean accounting and finance team because they’re relying on technology again. You know, you still need, when I say you still need human beings to do the variance analysis, automation, you know, whenever there’s a subject to interpretation. So revenue recognition, right? Accruals tax strategies, those are all still interpretation. Whenever there’s a gray area, then someone needs to make that call. But I definitely feel that automating processes and not trying to change the process, right? If the process is here’s the process with sales, then we like to tag on without getting, cuz getting people to change behavior is really difficult. So we try to always utilize the, the processes that already exist and that the data’s there, we as so far as go into working with the engineering team saying, the data’s there, we don’t need to recreate it. How do we get access to it? How do you provide us with ad hoc reporting or access to the database so that we can pull the data without having to recreate the wheel, right? And so that’s our approach. We become, we partner with the technology and the engineering teams to build solutions that make sense, right? And so much as process flow. Map the process flow, right? So sales does an insertion order, it gets signed, legal reviews it, like, we map that all out and we also delineate where the copies are gonna go, what the backup of that system is. So we really heavily get into ops, right? And the end of the day we’re looking at process flow and ops, not so much as to try to influence the business’s ops, but to understand the flow of data for our benefit.

Madhurima Gupta:
Thank you for so much for sharing your opinion on that. Now to, with this, we kind of come to the conclusion of the episode, but before we part ways, Frank, I have last three questions for you. The first one being what according to you should be the top priorities at CFO’s office in 2023?

Frank Mastronuzzi:
I Think it should always be it, but I think it’s reinforced with the downturn and that’s Cassius King, right? And managing the business’s cash flow for 2023 to make sure that you have enough runway and the ability to manage your expenses and cash, because, you know, as markets dry up, IPO markets, all these things the access to capital has tightened. And so you have to make do with better do with what you have. So I think for 2023, all CFOs should be focused on ways to reduce, you know, expenses, cash tightening the belt before it’s needed and also have, you know, plan a, plan B, right? If X happens, then this is the plan. Everyone knows what’s going to happen. So there’s no unexpected, you know, surprises, right? So if, if revenue doesn’t hit here, this is what we need to do, right? And as we start seeing signs, my thing is don’t wait till it’s too late, right? Make the plans and say, Okay, plan A is X, you know, if revenue doesn’t hit X, this is what we do. If revenue, you know, goes backwards, this is what we do, right? And so how do we still manage to profitability without hurting the long term goal? Right? cause you know, we’ve seen companies again, plateau. They don’t go backwards, their revenue doesn’t dip, or if it dips, it dips slightly and then you, then you see, okay, they figured out the solution to the problem and they sort of growing again. You know, I think that revenue projections that we do tend to be, you know, plateaus, right? So they grow, they plateau, they grow. We try to plan for that, right? And so I think that should be the focus for 2023 is cash flow management.

Madhurima Gupta:
The last question for you today, Frank for me is what, according to you by 2025 or how, according to you by 2025, is emerging technology gonna shape the future of CFO’s office?

Frank Mastronuzzi:
I think as the trends with fp and a modeling, right? You know, the blurring of lines between accounting and finance, right? You can automate a lot of the accounting pieces. So you need more people that are there looking at the focus is gonna be variance analysis or exception reports, right? We’re gonna be more focused on instead of doing the day to day bookkeeping entries, those will be automated, whether it’s machine learning or AI down the road, a lot of the, the lot of the groundwork will be done automated using technology. And then the, the human input will be analytics, you know, exception reporting focused on things that don’t look right, right? Like, so it’s gonna be us really focused on, you know, the, the, you know, the high level view of what, what’s supposed to be happening where. So I think that’s what’s gonna change by 2025. We’ll have KPI dashboards and metrics in reporting and investor communications will all be automated, but most of the time will be spent on watching it as it’s happening to make sure that we’re not, you know, we’re focused on exceptions and, and identifying them as early as possible, right? Not waiting to month end close to start doing Barons analysis. You’ll be doing Barrons analysis, you know, one weekend, two weeks in, three weeks in right to see. So there’ll be more real time variance analysis is what I would I see as the future.

Madhurima Gupta:
Great. Perfect. Thank you so much for sharing your opinion today on CFO Circle. Really, really appreciate you taking the time and I, I hope that our listeners did get to learn a thing or two from you and I’m sure it’s probably more than that. So all our listeners out there, thank you so much for taking time as well. And thank you Frank once again for taking time and having this really important conversation with me today.

Frank Mastronuzzi:
Same here. It was really nice talking to you. Have a good day.

Madhurima Gupta:
You too.