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Matching Resources with Strategy

Funding your new priorities

Paul Lehmann, CFO of the manufacturing firm Overhead Door, has a rule for finance’s involvement in the company’s planning process. “You never want to get in the way of a good business decision,” he says.
Key Takeaways
  • Companies can’t afford to lose sight of the end goal when making their near-term funding decisions.

  • Giving careful consideration to the different sources of financing that fit your company’s balance sheet and culture also allows for an optimal allocation of resources.

  • How you access funds can influence the levels available for specific initiatives. But this also means a CFO is dealing with more moving parts and complexity when matching different funding sources to the prioritized and sequenced list of initiatives that come out of your planning process.

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In other words, finance should be an enabler of growth, not an obstacle to it. The way a company allocates its resources is the practical expression of its business plan, reflecting priorities and timing. Lehmann says, “My job is to make sure that we’re doing what we can to avoid a situation where someone comes in with a good idea and it has to be put on the block because we can’t fund it.”

Eric Dusch, Chief Commercial Officer—Equipment Finance for GE Capital, Corporate Finance, has found that even the smaller companies he works with have become more sophisticated in managing their capex structure and evaluating alternative sources of funding. The data and tools they need are more readily available than ever before. “It’s a pretty good time to be a CFO,” says Dusch.
 
The greater amount of data and the better systems available today give even small companies the ability to make smarter, more informed decisions on how they access funds, spend their money, and calculate the return they can generate, Dusch maintains.
 
This, in turn, leads to the kind of “constructive conflict” in the planning process that a company needs in order to develop a realistic outlook for resource requirements, according to Greg Cameron, CFO of GE Capital, Americas. Cameron says, “Whether it’s around growth, cost, or any of the other lines on the P&L, you can have people openly debate at a leadership level, and engage the people in the business, to say, ‘This is what we’re going to need to do, this is what the growth trajectory looks like—we need to staff up for that, we need to invest in IT for that.’”
 
How you access funds can influence the levels available for specific initiatives. But this also means a CFO is dealing with more moving parts and complexity when matching different funding sources to the prioritized and sequenced list of initiatives that come out of your planning process. What are the alternative funding solutions that will be best for your company and its capital structure? What initiatives can be funded out of cash flow? Where do you need longer-term financing of some sort?
 
For example, Dusch says, if EBITDA is one of the metrics driving your business decisions, you may decide that capital leases or loans are the way to go. But, given today’s interest rates and availability of capital, might you be able to generate a couple million dollars of additional capex through off-balance-sheet financing, or by taking on additional indebtedness?
 
At the same time, companies can’t afford to lose sight of the end goal when making their near-term funding decisions. For this reason, Steve Torres, CFO and COO at the full-service IT infrastructure solutions provider Vology, Inc., adds “stratex,” or strategic expense, to the standard considerations of opex and capex. This allows him to set priorities and sequence his investments better, he believes.
 
“Ultimately,” he explains, “we know that we’re going to have to make some tradeoffs because we can’t invest in every initiative at the same time. So, our top initiatives will get the first priority in terms of the early investments, which can influence timing considerations for other initiatives. For example, as we see success, we can build a cushion in terms of surplus and then allocate any incremental surplus towards accelerating some of the other initiatives.”
 
Giving careful consideration to the different sources of financing that fit your company’s balance sheet and culture also allows for an optimal allocation of resources. Overhead Door’s Lehmann says that being able to draw on a diverse range of funding options can give the company more freedom to “flex our spending, delay or defer key spending, if necessary, tap into other opportunities, and perhaps drive incremental volume should any one of our planning assumptions not come into play.”
 
But there’s more to making the right funding decision than just finding the dollars, GE’s Dusch maintains. His best customers want to know that their finance partner understands their business and can deliver value. “Anybody can provide a rate,” he says. “Our customers are looking for somebody who provides ideas that can help build their business.”
 
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