The Secret CFO
@SecretCFO
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Sharing real world insights as the CFO of a multi-billion dollar company. Opinions, not advice.
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Announcement!
The next series of CFO Secrets will be on capital allocation.
Here's the draft running order:
1. Introducing Capital Allocation
- Linking Capital Allocation to Strategy
- Case Study
- 3 pillars of Capital Allocation
- Financial Policy
2. Investing In Growth
-
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EBITDA is a terrible measure of profitability.
Yeah that's right. You heard me.
Here's why 👇
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The best coach I ever had told me this:
Realists are more likely to be right.
Optimists are more likely to be happy and rich.
Always stuck with me …
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EBITDA is a TERRIBLE measure of profitability.
Here's why ⬇️⬇️
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Whilst accountants know how to prepare a BALANCE SHEET… 95% don’t know how to read them.
Interpreting balance sheets is the HARD bit.
So, here are the first 3 things I look for when reading a balance sheet.
Pull up a chair.
Let's go! 👇
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95% of people are reading balance sheets WRONG.
Stop wasting time with the ratios they taught you in business school.
Here’s how you read a balance sheet like a CFO.
Let's go! 👇
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If you are the CEO or CFO at a business who banks with SVB; here are some things you CAN do over the weekend
1. Build a 4 week rolling daily receipts and payments style cashflow forecast.
2. Gear up finance team to actualize & reforecast every AM by 10am
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How does a CFO prep for an earnings call?
Short answer … it’s a sh*t ton of work.
Here’s what I do: ⬇️
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As CFO, what is my favourite KPI?
Easy...Maintainable Free Cash Flow
"Oooooo, what's that?"
Pull up a chair, let me tell you...👇
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What is the difference between accounting and finance?
Accounting = Reading the news.
Finance = Making the news
And good finance is built on the Financial Planning and Analysis (FP&A) cycle.
FP&A is the set of processes that work together to improve future business financial
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Wanna know how CFOs cook the books? 🧑🍳📚
Silly question. Of course you do…
Here’s how: 👇👇👇
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McKinsey say 70% of ERP rollouts FAIL
But why is it so HARD?
Let me break it down: 👇
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No metric captures what I need to measure cashflow performance.
So I created my own.
It’s called Maintainable Free Cash Flow.
Here’s how it works:
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How does a CFO prep for an earnings call?
Short answer … it’s a shit ton of work.
Here’s what I do 👇🏼
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Business growth lives or dies by working capital.
Two business A & B:
Both have the same P&L unit economics
Base Sales = $500k per month
Operating Profit Margin = 10%
Both start with $1m cash in bank.
Both hit a growth vein.
Sales start growing at 15% per month.
Assuming no
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The HARDEST thing in business, is driving consistent performance.
But consistency is IMPOSSIBLE without a great FP&A cycle
Here’s what you need to know about FP&A:
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The hardest thing about my first big CFO role was learning to manage the Board of Directors
I worked it out … eventually.
Here are the 5 things I wished I known from the start 🧵
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Building a great finance team is HARD 😅
But get it right, and it makes your life 10x easier as CFO.
It took me 10 years to perfect a framework that worked.
Let me share it 👇
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How does working capital in M&A work?
It's complicated, but I'll try and explain in 2 minutes.
When you make an offer to buy a business, this is normally an 'Enterprise Value.' This means your valuation assumes:
- zero cash
- zero debt, and
- normalized working capital.
The
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The hardest thing about my first big CFO role was learning to manage the Board of Directors
I worked it out … EVENTUALLY.
Here are the 5 things I wished I known from the start 🧵
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Here is everything you need to know about Gross Margin in 3 minutes:
(With a bit of help from Larry David)
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This makes me angry.
What a gross failure of leadership.
Dressing up LIFO layoffs as performance based termination, is cowardly.
It transfers responsibility from the leadership to the employee, which is beyond unfair.
If you’ve fucked up and over hire:
1) Don’t. Be better
Getting fired is tough, but it’s important to handle it with dignity. Firing someone is also hard, requiring compassion and respect. Total disaster on both sides here.
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If you use Excel without touching the mouse you spend too much time in Excel
which unpopular opinion about Excel will have you in this position?
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I reached 90k followers overnight, so I figured it was a good time to remind you of my story.
I’m a career corporate CFO (10 figure + revenue businesses).
I’ve been in the accounting and finance profession for well over 2 decades, with nearly half that time as CFO of large
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Next series of CFO Secrets will be on cashflow.
Draft running order:
1. Intro
2. Measuring cash flow
3. Forecasting cash flow Part 1
4. Forecasting cash flow Part 2
5. Working Capital - why it matters
6. Working capital - making it better
7. Maintainable Free Cash Flow 😍🥰
8.
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I have done over 20 M&A deals over the last 15 years working for large corporates.
I've learned so much, but the most important lesson came from the first deal I ever did:
The value of opportunistic M&A.
Here's the story of a mercurial CEO unlocking $143m of equity value in
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Warren Buffett said that a CEOs
#1
job is to allocate capital.
He also said, most are TERRIBLE at it.
Here’s your 5 minute guide to allocating capital like a boss:
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Wanna know how the books get cooked? 🧑🍳📚
Silly question. Of course you do…
Here’s how: 👇👇👇
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I also get many message from new CFOs who have come in from the IB or MBA route finding my content helpful. Many are saying they feel out of their depth once in the CFO seat.
CFO roles are max 10% corporate finance and investor facing. I think many people from the outside
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Balance sheets are CRITICAL.
But you need to know how to use them.
But more importantly, you need to know how not to use them
I’ll explain 👇🏼🧵
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A contribution margin grid.
The most valuable weapon for finding the best way to improve profits in a business
This means organizing your income statement by cost behavior, rather than accounting classification.
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What the f*ck does a CFO do all day anyway...?
Here's how I spend my time:
🧵
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I have spent the last 17 years fixing broken finance functions.
Here are 11 mistakes I see consistently in poor finance functions:
🧵
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It’s Q4.
That means one thing. Corporate Budget Season.
A good budget process should drive better business performance.
It’s a center of gravity for business performance. A true North when things get hard.
But to understand the budget process, you have to understand how it
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I have never worked harder than when I was in my 20s.
My work life balance is great now, because it was terrible back then.
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1/ Hi 👋
I’m The Secret CFO.
I’m a career corporate CFO, specializing in large private businesses (10 figure + revenue biz)
I started posting on here in August, and reached 30k followers this week.
So, figured it’s a good time to re-introduce myself
Here’s my story.
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Warren Buffett said that great CEOs must MASTER capital allocation.
He also said, most are TERRIBLE at it.
Here’s how to allocate capital like a BOSS: 👇👇👇
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Mad to think I started this 4 months ago with a goal of 1,000 followers by Christmas, and now I’m an inch under 50k.
I set up the account in July 2021, didn’t post and completely forgot I had it.
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I bought a business last week.
$358k of annual net operating income, with $0 down (seller note financed).
IRR: (# DIV/0) 😎
Niche business in the print industry.
We paid 1.75x Adjusted Net Operating Income (deferred over 3 years) plus Net Surplus Cash on Balance Sheet (paid
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Businesses go bust when they run out of cash.
But the real question is why do they run out of cash?
It could be for one or more of 3 reasons: ⬇️
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How does a CFO prep for an earnings call?
Short answer … it’s a sh*t ton of work.
Here’s what I do: ⬇️
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I have interviewed nearly 1,000 accountants in my career.
Less than 2% have stood out as being exceptional
Here are the 10 traits I’m looking for in future finance leaders👇
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I use 5 sacred Planning & Reporting processes to drive financial performance.
Here's the breakdown 👇
(Warning: Contains controversial views about rolling forecasts)
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New year = New budget.
I’ve done nearly 20 consecutive annual planning cycles for large businesses.
Here are 7 principles behind a great budget:
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“The Cashflow Statement never lies”
Or so you think.
Many large businesses manipulate cash around year end dates.
Some are even doing it quarterly.
This really is a dirty little corporate secret.
🧵
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3/ EBITDA has a cousin called EBIT (Earnings Before Interest & Tax). It's like EBITDA But After Depreciation and Amortization.
EBIT could have been called EBITDABADA. But that would have been stupid.
Little CFO joke for you there ...
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For any CFO, mastering capital allocation is non-negotiable.
Here are the fundamentals in just 3 minutes 🧵:
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We are taught that costs are either fixed or variable:
o Fixed Costs = Costs fixed in $ regardless of output
o Variable Costs = Vary directly in $ with output
But that isn't the full story ...
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My first big CFO role was in a business with $5bn revenue.
It was the first time in my career I felt I might fail.
I had to make a running start.
I needed a killer 90 day plan.
Here’s the plan I used:
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When you are parachuted in to fix a broken business, your MBA goes out the window.
It counts for NOTHING.
Here are 3 mindset shifts you need in a turnaround that you won’t learn in business school 👇🧵
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Blaming the rate hikes for a stock price fall is the same as saying your stock was over valued before, based on artificially cheap money.
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Sat near a guy wearing an ‘EBITDA’ hat in a bar tonight.
Respect his commitment to financial metrics.
Do not respect his choice of metrics.
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There are 5 sacred Planning & Reporting processes to drive financial performance.
Here's the breakdown 👇
(Warning: Contains controversial views about rolling forecasts)
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Best takeaway from the
@elonmusk
book is the ‘Idiot Index’.
Idiot Index = Cost of a part or finished product divided by cost of its component raw materials at commodity level
Elon has his finance teams at Tesla and Spacex track the idiot index by component in every product.
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Sending a 2nd year graduate in to tell the 62 year old VP of Ops we just slashed his capex budget by $43m
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Financial Management in 280 characters
Annual:
- Build 3-5 Year Long Range Plan
- Zero Based Budget for Year 1
Monthly:
- Monthly P&L and Cashflow Reports
- Variances vs Budget
- Monthly Performance Reviews
Weekly:
- Revenue, EBIT and Cash Flash
- Rolling 13 Week Cash Forecast
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Cash FLOW is king, not cash.
Cash is the water in the bucket
Cashflow is the speed at which the bucket fills, or empties.
No good having a full bucket if it’s full of gushing holes.
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McKinsey say 70% of ERP rollouts FAIL
But why is it so HARD?
Let me break it down: 👇
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A few semi-controversial things I believe about the SVB situation:
1. SVB’s balance sheet was mis-managed. The management and equity deserve what they get
2. Depositors do not deserve to suffer as a result
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“I work at KPMG, of course I cheat on mandatory internal training exams”
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So good to get the FP&A team together for an offsite today
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These Sankey diagrams are a brilliant way of describing financial flows.
I’ve used them for presenting cash flow performance and they work brilliantly
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I’ve had a lot of fun in my 11 months on social media so far, but nothing… NOTHING… beats what just happened on LinkedIn.
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The CEO whilst I'm trying to get Q2 numbers finished.
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I can’t stress this enough.
If you are early in your career, be a problem solver, not a problem finder.
Great way to learn fast, get noticed and move up the ladder faster
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Most accountants are really bad at job interviews.
And I mean BAD.
But thats good news.
It means it's easy to stand out with the right prep.
Here’s how to do it 👇
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🤣
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If you see more than 2 CFOs changes in a company inside 2 years, your base assumption should be:
1. The business is in serious financial difficulty
And / or
2. The business is ungovernable. Ie CFO can’t stand behind the control / numbers
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With guys dropping like flies, here’s my two cents…
I choose to write under a pseudonym.
I never expected anyone to read my stuff when I started. Turns out a shit-tonne of people did.
Seems obvious now. But it didn’t when I wrote my first tweet.
It’s brought me more joy than
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Hey
@elonmusk
Woke up to see you are looking for a new CFO 👋🏼
I’ve got zero tech experience…I was still using hashtags 6 weeks ago.
But highly levered take privates is what I do baby 😎
I’ll get that bad boy spewing up cashflow before you’ve even got your sink installed.
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Masterclass in coaching:
- takes responsibility for the ‘mistake’ reducing pressure on the subject
- clear instruction on the correction
- gives space to self-correct (not over coaching)
- celebrates success reinforcing the transformation
A lot to learn from this video
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The best coach I ever had told me this:
Realists are more likely to be right.
Optimists are more likely to be happy and rich.
Always stuck with me …
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Building a great finance team is HARD 😅
But get it right, and it makes your life 10x easier as CFO.
It took me over 10 years to perfect a framework that worked.
Let me share it 👇
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Balance sheets.
How do they work? And why are they so important?
Give me 5 minutes and I'll explain.
This is the beginners guide to the balance sheet 👇
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Big tech blows my mind.
“Hey, we can just lay off 30% of our entire workforce with zero adverse impact to the product. In fact, it might speed things up a bit.”
The fact they can generate so much cash despite being so inefficient is incredible.
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I used to work for a senior Ops guy who did the same things every week. Like clockwork.
And he would record the week (KPIs, notable events, issues) in a double page of his handwritten notebook.
He had these notebooks in his office going back over 20 years.
He would be
Wildly misguided opinion from this guy
Execs want info in two ways:
1) email
2) on a ppt slide
because they’re super busy so they either need a direct stream of data straight into their inbox to peruse when they can
OR they need you to sit then down, get their attention and
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When I was a VP of Finance , one of my peers had a $16m reporting hole on his watch.
He failed to properly oversee his balance sheet following changes in process and an ERP implementation.
It wrecked his reputation and confidence.
His career never recovered.
If you are a CFO
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Me on day 2 in a new CFO gig killing the products with negative contribution margin
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CFO jobs are not about numbers.
They are about people, seen through the lens of the numbers.
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Business growth lives or dies by working capital.
Two business A & B:
Both have the same P&L unit economics
Base Sales = $500k per month
Operating Profit Margin = 10%
Both start with $1m cash in bank.
Both hit a growth vein.
Sales start growing at 15% per month.
Assuming no
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When I started on here, I got a fair bit of heat for using dumbed down language.
Being able to talk about almost anything in finance using elementary school language has been the biggest hack for my career.
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It's budget season. Here's a 2 minute guide to a corporate budget process:
Budget is not a finance process. It’s a business process facilitated by finance.
Key objective is to get a detailed financial plan that:
a) has KPI ‘buy in’ across the business from top floor to shop
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Businesses are bought and sold on multiples.
Not discounted cashflows.
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The best finance leaders have a ‘T-Shaped’ skill stack.
Broad enough in all areas to hold court across the business.
Deep enough in finance to level up the whole finance function.
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