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Decision Vision Episode 6: Should We Hire a CFO? - An Interview with Jay Ruhm, JCR Financial

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Should We Hire a CFO?

Michael Blake, Director of Brady Ware & Company and Host of the Decision Vision podcast, interviews Jay Ruhm on when to hire a CFO, what a good CFO offers a growing company, and whether there’s a role for the fractional CFO.

Jay Ruhm, JCR Financial

Jay Ruhm recently retired from Dinova, where he was CFO for the past 8 years and is currently offering financial consulting services to startups, early stage, and venture companies through his newly launched firm, JCR Financial Consulting.

As CFO of Dinova, he worked closely with the Founder and CEO as they took a bootstrap startup through several funding rounds of both debt and equity, culminating in a $40 million equity investment by Frontier Capital in 2017.  Finding the startup and venture world the most exciting environment of his career, Jay is looking to share the benefits of this experience with today’s aspiring entrepreneurs.

Jay received his MBA from Columbia Business School in NY.  He spent the formative years of his career at American Express where he rose from Financial Analyst to Southern Region Financial Officer of the Corporate Services Division.  As Financial Officer, he also had financial oversight responsibilities for several other Amex businesses based in Atlanta.  Jay led several major strategic initiatives including a major pricing initiative that saved Amex $125 million of at-risk annual revenues.

Between his stints at Dinova and Amex, Jay spent time as a Senior Managing Consultant at Huron Consulting, leading varied teams of up to 40 people working on the Delphi bankruptcy from the initial filing to post-emergence.  At the time it was the largest manufacturing bankruptcy in US history.  He also initiated and led the development of a system to coordinate the claims across multiple parts of the case.  He also spent time as a Division CFO at Kelly Services improving back office systems and pricing methods.

Michael Blake, Brady Ware & Company

Michael Blake is Host of the Decision Vision podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. Mike is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

He has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

Decision Vision is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the Decision Vision podcast. Past episodes of Decision Vision can be found here. Decision Vision is produced and broadcast by Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn: https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

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Show Transcript:

Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions brought to you by Brady Ware & Company. Brady Ware is a regional, full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.

Michael Blake: [00:00:21] And welcome back to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we’ll discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we’ll talk about and we’ll to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:41] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. And if you like this podcast, please subscribe on your favorite podcast aggregator and please consider leaving a review of the podcast as well.

Michael Blake: [00:01:05] So, today we’re going to talk about whether to hire a chief financial officer and when to hire a chief financial officer. And this is a decision, I think, that any company that plans to grow to any size must wrestle with. You can’t manage a business without numbers. It’s just impossible to do that. And then, managing by the numbers goes a lot beyond simply debits and credits, counting beans, counting money as it comes in. In fact, on another podcast, we’re talking about data analytics, and that is becoming part of the CFO’s job description.

Michael Blake: [00:01:49] But the big question, particularly for small companies, when you take that plunge, because CFO, these Chief Financial Officers, if they’re any good, they ain’t cheap. And that represent — and they’re not generating revenue – at least, not directly – they’re not selling, they’re not marketing, they’re not advertising, but you can’t find a big or even medium-sized successful company that does not have a competent CFO at the helm.

Michael Blake: [00:02:18] And, as a listener, you’re probably wondering — you might be wondering, “Should I hire a CFO now? Is it something I should wait two to three years on, or did I hire a CFO too quickly? Did I take that plunge too quickly, and maybe I should have waited?” And we’re going to talk about that. We’re going to talk about this issue with one of the best in the business. I am delighted to have my good friend, Jay Ruhm, on the program with us today.

Michael Blake: [00:02:49] Jay and I have known each other for a long time, longer than any of us would probably care to admit. We know where each other’s bodies are buried. We’ll just sort of leave it at that. But Jay recently retired from a company here in Alpharetta, Johns Creek, called Dinova, where he was the Chief Financial Officer for the past eight years, really from startup until exit. And he’s currently offering financial consulting services to startups, early stage, and venture companies to his newly launched firm JCR Financial Consulting.

Michael Blake: [00:03:25] As CFO of Dinova, he worked closely with the founder and CEO as they took a bootstrapped startup through several funding rounds of both debt and equity, culminating in a $40 million equity investment by Frontier Capital, which is a North Carolina-based private equity firm in 2017.

Michael Blake: [00:03:41] Finding a startup and venture were the most exciting environment of his career, Jay is looking to share the benefits of this experience with today’s aspiring entrepreneurs. That’s why he’s here. Jay received his MBA from Columbia Business School in New York. I didn’t realize that. You’re smarter than I thought. That’s great. He spent the formative years of his career at American Express where he rose from financial analyst to Southern Region Financial Officer of the Corporate Services Division. As financial officer, he also had financial oversight responsibilities with several other AMEX businesses based in Atlanta. Jay led several major strategic initiatives including a major pricing initiative that saved AMEX $125 million of at-risk annual revenues.

Michael Blake: [00:04:23] And. there’s sort of the canned introduction. I’m going to go off the script a little bit. Jay brings a wonderful and very unusual combination of technical acumen and just plain horse sense that you don’t often find. And maybe I’ll let him tell you about the Dinova story. I like it so much. I want to tell it, but that’s depriving him of the opportunity. But this is a guy who’s paid his dues. There are a lot of CFOs around, but this is a guy who really paid his dues to get from where he started off with Dinova to now enjoying, at least, a semi retirement. If I build him up any more, he’ll never be able to live up to the hype like the Batman movie. So, Jay Ruhm, welcome to the podcast, my friend. It’s great to have you on.

Jay Ruhm: [00:05:14] Thank you, Mike. Thanks for having me. It’s a delight to be here.

Michael Blake: [00:05:17] So, I’m going to start. I’d like you to talk about the Dinova story because, I think, it talks about the evolving role of the CFO. That company literally went from napkin to something big, something that had an eight-figure exit, and you were there pretty much every step of the way. So, talk about the Dinova story and your role. And I’m already jumping off the script, but we’ve known each other long enough. I can do that from day one, minute one. Talk about that story. It’s so awesome. The world’s got hear it.

Jay Ruhm: [00:05:53] I was on a consulting gig for a number of years in the bucket of no good deed goes unpunished. This was supposed to be a short bankruptcy, 90 days, solve one of the first day motion issues, and I ended up staying for four and a half years helping the Delphi company through its bankruptcy from the day they filed until well after the emergence. So, as I roll off that gig, my second phone call — The first phone call was home of course. The second phone call was to a very, very good friend of mine named Vic Macchio. Vic had this idea for Dinova. And so, I called him and said, “Hey, I’m off. How are you doing?” And he says, “I’ve got Dinova up and running.” I said, “That’s terrific.”

Jay Ruhm: [00:06:46] So, I get home, I go visit him, “What are you doing?” He says, “Well, I’m trying to raise some money. This thing is going to be bigger than I am.” And I said, “That’s a delight. I’m happy to help you. Do you have financial statements?” He says, “No. I don’t need financial statements. This is a pretty simple business model.” I said, “Vic, you need financial statements.” He comes around and says, “Okay. Let’s get some financial statements.” And he says, “But I can’t pay you.” And I said, “Vic, not a worry. I’ve known you 25 years,” at that time. That was 10 years ago. And I said, “It will all work out in the end. I believe in the business. Let me help.”.

Jay Ruhm: [00:07:27] And so, we started looking to raise some funds. That’s where I met my good friend, Mike Blake. Mike, you had no small role in that with your introductions to people in the community. You were a great, great help in helping us secure that funding and helping us network through the community.

Michael Blake: [00:07:46] I think I was the ugliest cheerleader on the planet, but okay. If you want to give me the credit, I’ll stop resisting it. I’m awesome. Go ahead.

Jay Ruhm: [00:07:53] There you go. So, we raised a few million dollars and got the business up and running. And over the years, took in some small amounts of equity, but I would call that A round the primary round. And their incomes, what does a CFO do? The first thing I did was work with Vic and manage the financials, so that we were cash flow-positive. As quickly as we could be cash flow-positive, that’s key. An investor does not want to hear, “I need money from an entrepreneur. I need money to make payroll.” An investor wants to hear, “I have an opportunity, which I’d like to take advantage of. Are you in?”

Michael Blake: [00:08:39] When an investor hears that, “I need money to make payroll,” it’s like we’re talking about the movie Airplane. By the way, does anybody know how to fly a plane? It goes over about that well, right?

Jay Ruhm: [00:08:53] So, right away, early on, you could use, at least, some CFO to help guide the financialship as it were. And through the years, we maintained financial discipline, turned profitable in the middle of the period, somewhere around 2014-2015, and grew the business that way. I think one of the key things that a CFO does that’s helpful to a business in that stage is other than the CEO, the CFO is the only other one that doesn’t have a parochial view or a view from a department head. It’s the one place in the company, other than the CEO, where an individual has a cross-company view. And that’s a pretty vital role, and it’s important that the CFO understand that and apply that. So, when one department head says, “I want to do this,” where’s the one place who’s going to say, “Well, you need to talk to this department and that department because you’re going to have impact over there”?

Michael Blake: [00:10:03] That’s interesting. I’d never heard of the CFO’s role being described that way. So, in effect, you become the air traffic controller?

Jay Ruhm: [00:10:10] In effect, yes. And it’s at a peer level too because the department heads and the CFO, they all report to the CEO. And so, that’s key. And so, you’ve got to be a good partner and a good team player.

Michael Blake: [00:10:26] So, let me ask this then. So, you’re brought into Dinova, Dinova, I think, at that time, was not generating revenue, or if it was, it was de minimus revenue. Is that correct?

Jay Ruhm: [00:10:37] It was de minimus, right. As I said, Vic had said, “Yes, I got Dinova up and running.” He didn’t tell me it was $12. Just getting started at 12 bucks, but it was small.

Michael Blake: [00:10:47] But it’s higher than zero, right?

Jay Ruhm: [00:10:49] Yes, it was more than zero.

Michael Blake: [00:10:50] So, technically, it was revenue-positive. So, why do you think he saw wisdom in hiring a person whose job is to count money when there is no money to count yet?

Jay Ruhm: [00:11:03] I’m not sure that that’s why he brought me in. I don’t know that Vic was thinking, “I need financial help.” It was more that-

Michael Blake: [00:11:12] Yeah, clearly.

Jay Ruhm: [00:11:14] It was much more that we had been good friends for a long time, and I offered to help for free. And when you’re starting a business, and you’re a CEO, and you’re trying to get something going, you take all the free help you can get.

Michael Blake: [00:11:28] So, one of the things I’m taking away from this is that a CFO, and at least in your case, you tell me if you think it’s more common or not, but you are kind of internal trusted advisor, right? We talk about trusted advisors and the outside. Ostensibly, I am a trusted advisor to god knows who. But you became Vic’s internal trusted advisor that was captive, somebody he could talk to, and early on, would have skin in the game by the way of having a modest ownership of the company and so forth.

Jay Ruhm: [00:12:03] Sure.

Michael Blake: [00:12:03] Right?

Jay Ruhm: [00:12:04] Yes.

Michael Blake: [00:12:06] And that has maybe very little to do with finance.

Jay Ruhm: [00:12:11] It has. You’re correct. It doesn’t require the knowledge or the technical skills that a CFO typically has, but that role is vitally important. And many experienced CEOs know that when they’re hiring a CFO, they are hiring a trusted adviser.

Michael Blake: [00:12:33] And is that why you wanted to have a CFO role? I mean, the CFO role is not easy, and it’s high stress. There’s very high turnover in the CFO world. It’s like a baseball manager almost hired to be fired. That’s the nature of the game. Why do you want to do that? What was your calling to do that?

Jay Ruhm: [00:12:55] I was lucky. Early in my career, I started off as an engineer and didn’t succeed very well. And so, went to – as we used to say in the ’70s – find myself. And I found myself curled up in a ball over in a corner, and picked myself up, and started looking at all different kinds of things, and found the business classes to be easy and fun. And the more I got into it, the more I enjoyed the operating finance role as opposed to accounting. What I like about operating finance is it’s there on the front line of the business.

Jay Ruhm: [00:13:33] As you said before, no, I’m not the one ringing the cash register, but I am the one working with the sales leader to price, and what’s a good deal, and to coach and advise not only the CEO but all of the other department heads as to what makes good financial sense.

Michael Blake: [00:13:57] All right. So, now, I think one of the reasons to bring in a CFO is to get the CEO out of the CFO business, right?

Jay Ruhm: [00:14:07] Yes.

Michael Blake: [00:14:09] To let them do what what they do well. So, if you’re at liberty to do so – We’re going off script again, that’s okay – Talk a little bit about your relationship with Vic. And we know what his strengths are. What did him hiring you enable him to do more of that made Dinova successful?

Jay Ruhm: [00:14:27] In a bootstrapped startup, you have to do everything. And Vic was paying the bills, literally, writing the checks, and keeping track of everything. And so, I took him out of that business. I started paying the bills, keeping the books. That was the very, very beginning, preparing the financial statements, as well as advising on business direction and strategic issues.

Michael Blake: [00:15:00] And then, that enabled him to do more of what?

Jay Ruhm: [00:15:03] At that stage in the business and pretty much throughout, his forte is is marketing, sales and marketing. And so, it really allowed him to work that much closer with the sales and marketing folks and build the business on that side. As Vic and I often joke, I say, “Vic, you take care of the revenue. That’s not my thing. You bring in the revenue. I’ll take care of the expenses and the bottom line and make sure we have a healthy balance sheet.”

Michael Blake: [00:15:34] And as I recall, he is very good at raising capital too, which if you’re to generate revenue, you’d better be raising capital. You’ll have one of those two things in the short trip, right. So, I think, the wisdom of him bringing you in as that internal trust advisor enabled him to get out the things that were not value added from his perspective and really focus on the things that were required for Dinova to ultimately thrive, right?

Jay Ruhm: [00:16:01] Yes.

Michael Blake: [00:16:02] Right.

Jay Ruhm: [00:16:02] Yes, absolutely. One of the things that you mentioned raising capital as a value-add, to a point. When you spend too much time raising capital, you’re not focusing on the business. And one of the things I wanted to do was get Vic out of the capital racing business and raise funds when we had to, when we needed to. And when I say when we had to, it wasn’t to make payroll. Remember debt, from a CFO’s perspective, is a tool if you can lever up the balance sheet from nothing. The example I use is the cost of capital. If your equity costs 30%, then you’re not going to take on a 25% return project. That’s not worth it. But if you can throw a little debt on there at 5% or 10%, you bring that cost of capital down to 20%, then, all of a sudden, you’re 25% projects start to look pretty good, and it lets you do more.

Michael Blake: [00:17:08] And, now, working cost of capital. Now, we’re talking dirty. That’s good. Yeah, the finance geeks are going to really geek out on this. So, I think, a lot of listeners don’t necessarily understand the difference between a CFO and a controller. And many companies, I think, hire a controller and they may decide that that’s enough. But I wonder how many people really understand the difference between a CFO and a controller. Can you explain that difference because they are different roles? The controller typically reports to a CFO if there is one. What are those jobs? How do those job descriptions typically differ?

Jay Ruhm: [00:17:50] Well, it starts right with the skills that are brought to the table. There’s a reason one can major in Finance in school, and one can major in Accounting in school, and they are different. So, it starts right with the skill set. Accounting is very technical, very important. The financial statements are how a business communicates to its audience, its investors. And it’s very, very important that the language of accounting be observed, so that those financial statements mean something. That is the primary focus of a controller is not only the preparation, the debits and credits, also the controls – hence, the word controller – but there are checks and balances that one needs to put in place, segregation of duties. We’re really going to get into it now, Mike.

Jay Ruhm: [00:18:45] When we started, we had our first audit, and I told the auditor, “Yes, I pay the bill. I pay the bills, I reconcile the bank account, and I prepare the financial statements. How’s that for segregation of duty?” Man, there wasn’t any, but that’s what it was. So, the controller is going to build all those processes as the company grows and prepare the company for its first audit, which, by the way, I recommend be done as early as possible. You always want to build the infrastructure ahead of the future growth. You don’t want to find you’ve got all this money coming in, and you can’t control it. That’s a recipe for losing some. And so, that’s the primary focus of the controller.

Jay Ruhm: [00:19:35] The CFO is a broader job. The CFO must be fluent in accounting and all that goes along with it. But the CFO, as we’ve talked earlier in the show, also has to be the internal advisor. Another piece of the CFO job that we didn’t talk about is strategic. And that is, what’s the strategic plan? There’s another function that many folks know is BP&FA, business planning and financial analysis. That falls under the CFO as well. And, oftentimes, in a growing company, the CFO is wearing many, many other hats. I had responsibility for HR. And so, there’s lots of things.

Jay Ruhm: [00:20:25] I had a mentor once, when I was at American Express, a young lad was working for an executive. And he said, “Hey, I’ve got an HR person. I have a marketing person. I have an operations person. And if it’s not HR, marketing, or operations, it’s finance.” And so, the finance is the one place that’s got to pick up all the loose ends. Make sure all the Ts are crossed, and the Is are dotted.

Michael Blake: [00:20:52] Interesting. Okay. So, I’ve never heard the role quite that described and quite that way, but it does make sense of the C-level positions other than CEO as you talked about. It’s the least siloed of any of those functions, right? And I’m reading a lot about the CFO role even changing beyond that as the stereotypical CFO role is you’re the numbers guy. And you leave the strategy to somebody else or the job is to somehow make the finance work with that strategy or advise when the finances will not support that strategy and it must be altered. But I’m seeing a trend where those two roles are now converging. You cannot be a non-strategic CFO and be successful anymore in that role. Do you agree with that?

Jay Ruhm: [00:21:50] I completely agree with that. One of the benefits of being at American Express early in my career is that’s a very, very forward-thinking company. It’s been a leader. What I define as a great company is a company that’s been a leader in its field, top of its game for a hundred years, not 15 or 20, because all of those companies that are leaders in their field and have been for a century are in a completely different business than they were a hundred years ago. How did they do that? Microsoft may very well be a great company, and it is a great company, but their business model hasn’t yet been turned completely upside down. They’re growing, they’re bigger, but they’re not in a completely different business than they were when they started. I think Procter & Gamble has one product that’s a hundred years old, and that’s Ivory Soap.

Michael Blake: [00:22:49] Is that right? I didn’t know that.

Jay Ruhm: [00:22:51] Yeah. Ivory Soap has been around a very, very, very long time.

Michael Blake: [00:22:54] Okay.

Jay Ruhm: [00:22:54] So, right there at the operating level within AMEX, there was a distinction between accounting and a business unit CFO as I was. Now, of course, if something went wrong on an audit report, it landed on my desk. But, generally, I was not involved in the debits and credits. It was BP&FA, and it was an advisory role to the general manager. And that was back in the late ’80s. And the world has since moved much, much more in that direction. And I don’t mean to take anything away from my CPA brethren. They bring a whole lot to the table, and I’ve seen many, many CPAs who are just as strategic as any other CFO, and they make great CFOs.

Michael Blake: [00:23:51] So, I was going to kind of ask this. Historically, there’s been this dichotomy or this distinction that you either had a CFO who is a real accounting wiz, or you had a CFO that really understood finance, could have conversations with bankers, venture capitalists, and so forth, set up financing schemes, and you really couldn’t have both in the same individual. So, you had one of the other, and you chose that role depending on how the organization shakes out, and what their particular goals and needs are. Is that distinction meaningful anymore?

Jay Ruhm: [00:24:36] Yes, it still is.

Michael Blake: [00:24:38] Okay.

Jay Ruhm: [00:24:38] Because as we were talking earlier, when I described the differences in the roles between what a controller does and what a CFO does, they’re still extremely vital to the company. And even a CPA and CFO. And I know many of those, they will also have a controller work for them, so that they’re not totally focused on that, and they free up some time to do the advisory role and the strategic role that’s required of a CFO today.

Michael Blake: [00:25:14] Okay. So, do you have a story out there where you, as a CFO at Dinova, what’s an example where you felt like you made the greatest impact on the company?

Jay Ruhm: [00:25:28] That all comes back in my view, ultimately, to a leadership question. And it’s much more about leadership than it is about necessarily technical finance. So, as we were growing, it had been my approach to prepare the infrastructure for the growth, so that when we had outside funding coming in and needed to deliver audited financial statements that we had the processes and procedures in place, and how would I get that done.

Jay Ruhm: [00:26:05] And in leading a team it wasn’t me. I was fortunate enough to have a dedicated team of professionals, great, great people who I keep in touch with, of course, who I would set the guiding way, and said, “Okay, we need to-” A great example is the implementation of NetSuite. We were on QuickBooks Online. Just didn’t meet our needs. A great product, we used it for many years, but we needed something much, much more. And I wanted online, which, at the time, QuickBooks didn’t have. QuickBooks would have meant a server. I didn’t want that.

Jay Ruhm: [00:26:42] So, we went with NetSuite, and it gave us a lot more flexibility in terms of analytics. It gave us great, great efficiencies, and that had a huge impact because it allowed us to grow and build the finance team and structure and get all those things done.

Jay Ruhm: [00:27:07] Well, I always had my eye on, what’s a world class finance organization? What is it as a percentage of the expenses or the headcount? And my research indicated it was something less than 10%. I wanted less than 10% of the resources of the company going to the finance and the infrastructure. And so, that was the target. And to do that, like I said, it comes back to the team and the leadership. And in leading a team, you set a direction, you leave your door open, and then you get the hell out of the way and let them go to work.

Michael Blake: [00:27:50] So, all right. So, I think this is drawing out a very important point because, I think, many folks, especially if they have not hired a CFO before, we equate CFO with accounting first; finance second, ironically, but there are intertwined. But what’s coming out of this is that it’s not about how much money you have to count. It’s not about how complex your finances are, but do you need somebody else, or you always need somebody else on the team who is a good leader who happens to have a skill set in those particular areas. And no firm can ever have too much leadership, right?

Jay Ruhm: [00:28:36] Right. There’s an old saying, and you mentioned it earlier, you said a CFO can be expensive. I would suggest that it’s less expensive than not having one.

Michael Blake: [00:28:50] Because things get missed, right?

Jay Ruhm: [00:28:53] Yes.

Michael Blake: [00:28:53] And people don’t get led. And when you’re in a startup position particularly, right, you can outspend your mistakes.

Jay Ruhm: [00:29:04] That’s true. And I’m going to relate it back to the advisory role. Every small company tries to get a good board of advisors, but they’re external people. And the CFO can be the internal advisor, as you pointed out earlier. And how that differs from the external is not only a better understanding of the nuts and bolts of the business, but it’s also a frequency. How often does the CEO get to turn to somebody and ask a question? You make use of the outside advisors, but on a daily basis, it’s the CFO.

Michael Blake: [00:29:44] Yeah. It’s a lonely place, right? So, the CFO makes it a little bit less lonely. I’m curious about your position on this. Of course, in your position with Dinova, where Vic didn’t have the money to pay you right off the bat, you accepted equity as part of that compensation. But even if a company has cash, do you think that ownership of the company in some fashion ought to be a requirement of the CFO, or do you think it matters?

Jay Ruhm: [00:30:16] It matters a whole lot. And my own view is that ownership of the company should be spread as far and wide inside the company as possible. Absolutely critical. What goes along with that, just giving somebody ownership of the company doesn’t mean that they’re always going to act in the best interest of the company. And I’m not suggesting malfeasance. What I am suggesting is a simple lack of knowledge. When you give a financial device or implement such as a share of stock to an HR manager who is not very terrifically skilled in HR matters, but not in finance-

Michael Blake: [00:31:01] They’re not Warren Buffett necessarily.

Jay Ruhm: [00:31:04] So, what goes along with that is some level of financial knowledge has to be spread along. So, in my view, just a recap, I think as many people as possible should have stock. And when that stock goes out, there should also be workshops and sharing of knowledge of what is finance. And as a valuation expert, Mike, you understand the name of the game for small companies. To get to that exit, you have to understand valuation. What makes the stock price go up?

Michael Blake: [00:31:37] Yeah. Yeah, for sure.

Jay Ruhm: [00:31:38] And it’s more than just making money.

Michael Blake: [00:31:40] So, one of the roles we often associate with a CFO is to be a counterweight to the CEO. That’s stereotypical. Do you find that to be true? And if so, how do you manage that, so the conversations are always constructive and not potentially destructive?

Jay Ruhm: [00:32:14] I would say that’s even desirable, Mike. You want a yin and yang. There’s no better role for a CFO than to have the classic entrepreneur as the CEO. That CEO is going to do a lot of things that the CFO just can’t. They’re not in the toolkit, right? And that’s where the advisor and the relationship comes in. There has to be healthy discussions. Not every entrepreneur can bring in a CFO that they knew for 25 years. You’re going to have to hire somebody who you previously didn’t know. However, you’ve got to start building that relationship immediately, and there has to be that healthy give and take.

Michael Blake: [00:33:06] And one thing, often, in observing how you manage that, I don’t recall a story of you ever telling Vic no but rather responding to a decision and saying, “Here’s what the impact is.” And we’ve said that we’ve had certain goals. In your case, it was on a certain amount of cash in the account, right, certain amount of safety. And if we do it this way, it’s going to take some of that safety away.

Jay Ruhm: [00:33:37] I would say yes to both. I don’t often retell stories of when I’ve told Vic no, and I’ll let him tell you how many times he’s heard me say no, but it’s always followed up with, “Here’s why.” I would not trade away the classic entrepreneurialism that Vic brought to the table-

Michael Blake: [00:33:57] Sure.

Jay Ruhm: [00:33:58] … for anything.

Michael Blake: [00:33:59] It was critical.

Jay Ruhm: [00:34:00] It was absolutely critical to the growth of the business. So, that’s where our healthy discussions came in is, “You want to do what?”

Michael Blake: [00:34:11] But you didn’t always agree necessarily right off have to achieve a consensus somehow.

Jay Ruhm: [00:34:16] I would say most of the time, we came to consensus. And there were times where he would take my advice and not do something. And there were other times where he would say, “Nope, we’re doing this, and I’m pulling rank on you.”

Michael Blake: [00:34:38] And that happens.

Jay Ruhm: [00:34:39] That absolutely happened. And you know what, didn’t hurt my feelings at all.

Michael Blake: [00:34:42] That’s the NFL, right?

Jay Ruhm: [00:34:43] Yup.

Michael Blake: [00:34:46] So, one last question I want this could be a two podcast. But do you think about part CFOs? There are a lot of those services around, fractional CFO services. Is there a useful role for providers, advisors like that to you’re not quite sure about if  want a CFO full maybe you don’t feel comfortable financial commitment, or do you think you’ve just got to  the Band-Aid off and just go?

Jay Ruhm: [00:35:19] No. I think, there’s a role for the fractional CFO. There absolutely is. What I would advise in a relationship with a fractional CFO is that you don’t have that CFO doing the accounting.

Michael Blake: [00:35:36] Really?

Michael Blake: [00:35:37] Why?

Jay Ruhm: [00:35:40] Because I would want that CFO going over business plans, making forecasts, understanding the business, and advising. I would have an outside CPA or a bookkeeper. What many, many businesses do when they start up is get that accounting piece done. I would keep that away from the fractional CFO, just so that I’m not spending my resources having the CFO doing that.

Michael Blake: [00:36:12] And in effect, spending $250 hour and a $60 an hour skill set, among other things. Right?

Jay Ruhm: [00:36:18] Yes. That’s a good way to describe it.

Michael Blake: [00:36:20] And I think I’ve seen this too is that, sometimes, a CFO will be hired, but then they’re doing the wrong not doing CFO things. And that’s not great either.

Jay Ruhm: [00:36:36] Yeah. There is a balance that has to be struck between where the CFO spends their time. As you recognized right up front, we’re not the ones who make the cash register ring, but I sure want to help make it ring. And if I’m preparing a financial statement, which I did in the beginning because I had to, when I’m doing that, I’m not out meeting a customer.

Michael Blake: [00:37:06] Right, okay. This has been great. We have all kinds of other things we could cover, but we can’t cover this topic exhaustively. If somebody wants to follow up with you and ask about some of this, can they do that?

Jay Ruhm: [00:37:27] Absolutely.

Michael Blake: [00:37:27] So, how would they get a hold of you?

Jay Ruhm: [00:37:30] Best way to do it is through e-mail. I’m at Gmail. It’s my name followed by the number one. So, it’s jayruhm1@gmail.com.

Michael Blake: [00:37:42] All right. Very good. Well, that’s going to wrap it up for today’s program. I would like to thank my good friend, Jay Rhum, so much for joining us and sharing his expertise with us on this CFO issue. We’ll be exploring a new topic each tune in, so when you’re faced with your next business decision, you have clear vision when making it. Again, if  you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.