Chapin Hill Advisors’ panel of experts shares insights on what deal flow is taking place, what is stalled and what opportunities are out there. Listen to our experts: M&A attorney, Dennis O’Rourke w/ Moritt Hock & Hamroff LLP; Ron Lehman, MD Bruderman Brothers; Keith Dee, President Osage Advisors & Allan Tepper, co-founder CFO Consulting Partners take us through their views on the current state of affairs. What deals are going forward, which ones are in triage; are PE firms going to add to their portfolios and more. Moderated by Kathy Boyle. The link for the video can be found here.
Thoughts About Your Accounting Close and Financial Reporting with a Remote Workforce
Many businesses are adopting social distancing strategies, including increased use of remote workforces to adapt to and fight through the Covid-19 crisis. Completing monthly, quarterly or annual financial reporting activities can be challenging to accomplish remotely, so we share our experiences in assisting clients to do so in this article. With thoughtful management, the efficiency and effectiveness of accounting and reporting processes can be maintained as much as possible with a remote workforce.
The physical separation of remote workforces adds difficulty to all involved. While many of the tools used under “normal operations” continue to be effective, the remote nature of the workforce may change the way in which the work product is compiled and assembled. It will also change the interaction needed between team members to complete, review and perform quality control on the work products. Therefore, leaders need to make extra efforts to overcome the difficulties of operating remotely.
- Clearly define goals and project plans, and monitor and report on status. These disciplines are more important now than ever before to enable processes to run smoothly and avoid fire drills that are even more challenging in a remote environment.
- Communicate more than “normal” so that everyone can become comfortable with remote work and interactions.
- Ensure that the technology and information security requirements are in place so that your team can operate effectively on a remote basis
Working remotely and meeting critical finance, accounting and reporting deadlines requires significant focus to optimize team structure and workflows.
- Use detailed project plans, checklists, timelines and other mechanisms to define project requirements, clarify roles within the team, identify dependencies, and communicate status. Monthly and quarterly closing checklists and similar outlines are extremely helpful for all required deliverables: Board and senior management reports, press releases, SEC reporting, etc.
- Make resources available to all who need them in real time.
- Develop a file storage plan and use it consistently while maintaining appropriate access security over those files. Typically, companies will create a central folder for each period’s financial reports.
- Finished work products should be stored centrally and shared according to agreed-upon nomenclature so that team members can locate and process as needed.
- One individual should own a document and be the gatekeeper for changes proposed by internal preparers, executive management, external legal and accounting advisors, investor relations etc.
- The gatekeeper should maintain version control so that reviewers can easily identify updates to the documents. “Track Changes” and blacklined documents help focus reviewers’ efforts.
- Establish deadlines for comments and limit the number of drafts to minimize time spent processing successive versions. Relevant comments will always need to be considered but avoid excessive wordsmithing once you have a solid document.
Success as remote team is tied to many factors: Convenient and secure access to information. Clear project plans and access to effective project management tools, deploying team members effectively and relentless communication while supporting individual needs for job satisfaction, growth and enrichment.
Larry Davis – ldavis@cfoconsultingpartners.com
Paul Karr – pkarr@cfoconsultingpartners.com
Eric Segal – esegal@cfoconsultingpartners.com
Case Study 2020 Business Services Assignment
Issue:
The Board of a recently acquired Private Equity portfolio company had identified significant deficiencies in the accounting/finance function, most importantly the department’s inability to produce accurate and timely financial statements/reports. There was no confidence in the finance department and the company lacked a permanent CFO. The company needed an assessment of the situation and recommendations on how to fix the problems.
What We Did:
We first performed an assessment and reported back to the Board, identifying multiple deficiencies, many of which contributed to the inability to produce accurate and timely financials. We also completed a staff assessment and worked with an executive search firm to develop a profile for a CFO. We provided specific examples of each deficiency and possible remedial actions. CFOCP was then engaged to address the deficiencies, and work with company personnel to remediate them. CFOCP worked with the finance staff to develop a detailed closing calendar and identify and execute steps needed to remediate the deficiencies. Along the way, CFOCP made several recommendations to improve the tools and processes used by the accounting department, implement best practices and improve internal controls.
How We did It:
During the engagement, we encountered some accounts with unsupportable general ledger activity. In accounts such as Accounts Receivable, which should tie to the subsidiary ledger, netting entries were being recorded by the client to ensure that the balances agreed. This practice resulted in some GL accounts not having subsidiary ledger that supported the GL balance. In addition, the reconciliations included a significant amount of aged reconciling items which lacked adequate support.
The client’s allowance for loan losses policy was aligned with its UK parent, however, it was not GAAP compliant. We drafted and implemented a new policy to ensure compliance.
We also helped the remaining staff to step up and expand their knowledge and understanding of the systems and processes. Previously they had done some processes by rote at the direction of the former controller. We provided training for both the local and international finance teams and documented the processes as we went along.
Conclusion:
In this engagement, we collaborated closely with local and international finance teams and the auditors. In the end we were successful in ensuring the client’s financial statements and supporting documentation were complete and accurate and the auditors issued a clean audit opinion on a timely basis as required by the regulators. We also provided the CFO with documentation of the financial and reconciliation processes.
by Dave Northrup, Director, CFO Consulting Partners
dnorthrup@cfoconsultingpartners.com, (646) 650-2028 x712
View Our Webinar: Business in the Time of Coronavirus
The link to view the webinar, Business in the Time of the Coronavirus can be found here.
Information on the event can be seen below:
How can your business adapt to the new normal and plan for an uncertain future? How can the provisions of the CARES Act and other related stimulus help your business now? More importantly, how do they actually work in practice?
Our panel of experts will answer your questions across a range of disciplines.
You also have the opportunity to put forward 3 questions in advance and we will ensure they’re answered on the day. You will be asked to submit questions when registering.
Moderator:
Mark Taylor, Vistage: Leadership
Our Panel of Experts:
Craig Teahen, Freeman Clarke: Tech & Digital
David DeMuth – CFO Consulting Partners: Finance
Allan Tepper, CFO Consulting Partners: Finance
Jason Rimland – Tannenbaum Helpern Syracuse & Hirschtritt LLP: Legal & Benefits
Newsletter – April 2020
Thinking Ahead – Accounting for Loan Losses During and After Covid-19
One of the many challenges posed by the current health crisis is the need for lenders to reassess their borrowers’ ability to repay their loans. While it may seem unfair, or even unseemly, to have to address this issue at this time, financial institutions will need to do exactly that in closing their books and reporting on the First Quarter of 2020 in their regulatory reports and (for SEC registrants) Forms 10-Q.
The accounting approach most community institutions are following, and on which we will focus here, is the traditional, probable incurred loss model. This model requires institutions to provide for losses that are probable to have been incurred under the GAAP literature in Accounting Standards Codification (ASC) 450, Contingencies, and 310, Receivables. In practice, this usually involves a modeled component, based on historical write-offs over a look-back period, and a qualitative component, based on the current state and trend of economic and other factors affecting the portfolio. A good summary of the factors to be considered in this qualitative analysis are the nine points summarized in an Interagency Policy Statement issued in 2006 by federal banking agencies, which can be found at this link: https://www.occ.gov/news-issuances/bulletins/2006/bulletin-2006-47a.pdf
Generally, increased loss provisions are expected but likely too few facts are available to make specific loss assumptions. Measuring specific incurred losses at the end of Q1 will be difficult and most likely will be addressed through additional qualitative factors. Reserve assumptions for those credits already under analysis should be reevaluated and likely dealt with across product and delinquency categories.
Following are the nine points from the Policy Statement, in italics, followed in each case by our comments:
1. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses. This would include loan forbearance and other regulatory relief measures enacted to assist with resolution of the crisis: https://www.fdic.gov/news/news/press/2020/pr20038a.pdf
2. Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments. The effects of the current health crisis will be pervasive, as covered in the other points.
3. Changes in the nature and volume of the portfolio and in the terms of loans. Institutions will need to address any shifts in new lending – in some portfolio segments, new production will have stopped, and thus not be available to offset increased non-performing loans and normal amortization within those segments. Thus, looking forward and doing the math, loss rates will increase within these portfolio segments.
4. Changes in the experience, ability, and depth of lending management and other relevant staff. Will there be sufficient staff available to effectively manage the portfolio? Will remote collection efforts be as effective as prior techniques?
5. Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans. A sharp increase in delinquencies can be expected, albeit delayed by the TDR forbearance mentioned above. The ultimate losses may be mitigated by any government guarantees that are available, as well as borrowers’ ability to access business interruption insurance.
6. Changes in the quality of the institution’s loan review system.
Improvements that strengthen the process of reviewing loans could be a mitigating factor. If however, the loan review process weakens, either because of staff illness or other limitations, this factor may be another reason to strengthen reserves.
7. Changes in the value of underlying collateral for collateral-dependent loans. Real estate loans will be a challenging area, as the impact of current developments on the commercial and residential real estate markets will take some time to shake out, however declines in market values seem likely.
8. The existence and effect of any concentrations of credit, and changes in the level of such concentrations. The effect of concentrations can become more severe as conditions in certain industry sectors worsen, and the relative size of concentrations can become larger as healthier loans run off in a low origination environment.
9. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio. These factors include forbearance that is enabled by legislation e.g., restrictions on foreclosure that lead to increased losses from deterioration in the physical condition of properties and/or in the property market.
Your portfolio consists of two types of borrowers: healthy and current borrowers who may be negatively affected by the duration and severity of the current crisis; and those already exhibiting financial stress (past due and delinquent accounts, businesses already under severe attack from a variety of sources including the lack of a viable internet strategy, lower cost of foreign competition, and many others) for which the current crisis may finalize their situation. Both may benefit from the governmental assistance and forbearance programs, however the exclusion from TDR accounting applies only to the former borrowers. You should track and maintain records of your borrowers’ status throughout the deferment and modification process in order to demonstrate those which are not TDRs.
We have discussed the challenge of first quarter reserving with senior representatives from several large accounting firms, and the following pieces of practical advice emerged:
* Now is not too soon to begin discussing reserving considerations with professional service providers, including auditors and consultants.
* Most institutions are targeting timely filings of their First Quarter reports, notwithstanding the grace periods being offered by regulators, including the FDIC and SEC. See the announcement of the grace periods at:
https://www.fdic.gov/news/news/financial/2020/fil20028.html
https://www.sec.gov/news/press-release/2020-53
* Auditors, regulators, analysts and other interested parties will be looking for a strengthening of the environmental/qualitative reserve, along with supporting evidence that identifies the impact of current events and links to any adjustments.
* Whatever process is followed, it will be necessary to step back and consider whether the result makes sense.
* Whatever answer is arrived at for First Quarter reporting, further adjustments will undoubtedly be required in the Second and Third Quarters as more information becomes available.
We are familiar with these issues and accustomed to working remotely. Please let us know if we can help in any way.
Note on CECL: Institutions that have adopted the new Current Expected Credit Loss Model in the First Quarter will have similar considerations, but with the additional challenge of adopting the new model. They should also consider the possible impact of the CARES Act on timing of adoption, and related regulatory actions, including the Federal Institutions Letter on the interaction between timing of adoption and capital relief:
https://www.fdic.gov/news/news/financial/2020/fil20032.pdf
Larry Davis – ldavis@cfoconsultingpartners.com
Paul Karr – pkarr@cfoconsultingpartners.com
Eric Segal – esegal@cfoconsultingpartners.com
Cash Forecasting
Cash forecasting, always important, becomes even more highly critical during times of economic disruption. Here are some key points to consider for an effective process:
1. Use a segmented approach to avoid over forecasting cash inflows. Consider customer segment, size, and seasonality – tax time could drive slower payment behavior for all types of clients.
2. Experiment with data that helps differentiate slower payers, e.g. credit ratings, industry, etc., to inform the forecast and contribute to faster collections.
3. Test solutions that help manage the lag between payments and collections; For example, tying accounts receivable team compensation to timely invoice issuance, offering discounts to slower paying customers for prompt payments, and perhaps requiring a partial upfront deposit from customers who regularly pay late.
4. Organize the forecasting approach and outputs in a consistent manner so that the accuracy of prior forecasts can be assessed. and so that it’s clear where to adjust management’s estimates.
5. For cash outflows, communication across the management team can make or break this process. Especially in a start-up where monthly spend patterns based on history are not available, there is no steady state to rely on. Management team members should regularly discuss and consolidate their outlooks for daily cash receipts and disbursements.
6. Start with prior bank statement activity to come up with typical monthly recurring items.
7. Map key bank statement items to actual expense so that the expense patterns in business plans and budgets can provide context for the cash forecast.
8. Identify cash items already expensed and therefore not in management’s outlook, as well as future capital outlays.
9. A detailed aging, accounts payable for outflows and accounts receivable for inflows, is a ready source of information for future cash flows and is extremely helpful in cash forecasting.
10. Take into account any cash flow benefits from the new Coronavirus Aid, Relief, and. Economic Security Act.
If CFO Consulting Partners can help your organization with additional support and skill sets of experienced accounting and finance professionals, please do not hesitate to contact us.
We hope your families, employees, and colleagues remain safe and healthy during these unprecedented times.
Rob Milrod, Director — rmilrod@cfoconsultingpartners.com
Cash Flow – We Want to Help
We hope you and your family are well during this Covid-19 event.
From a business perspective, it is likely that almost all companies will suffer reduced sales and cash flow. Cash is often said to be king, and this crisis is reinforcing that idea.
At CFO Consulting Partners, a senior-level financial management firm comprised mostly of former CFOs and Controllers, we are here to help. We often work with companies on cash flow issues. Our cash flow work includes working with the various cash flow technical tools that assist companies with forecasting, payments management and collection techniques.
We would be pleased to assist your company with questions on new emergency government regulations, on cash flow or other business issues resulting from this crisis on a no obligation, complimentary call. To take advantage of this offer, please complete the questionnaire which can be found here.
Sincerely,
Partners:
Allan Tepper
David DeMuth
Eric Segal
Survive, Stabilize and Thrive – CRE Coronavirus Impact
Over the last week we have seen unprecedented actions to attempt to minimize the impact of COVID-19 on us and give our health care system the ability to support us during this crisis. As a result, it has affected our normal day to day activities, resulted in the closure of all non-essential businesses and has presented the businesses that do remain open with many challenges. It has morphed into a longer lasting and more intense shutdown of activities throughout the country. As of this writing, there is still a lot of uncertainty that all of us must undergo. For our businesses, we must evaluate how we survive, then stabilize and then thrive once we get through these unprecedented times.
Our Real Estate Group, David DeMuth, John Kovacs, Mark Sloan and Mario Tamasi have extensive experience in the CRE industry each in varying degree. Please feel free to visit our website at www.cfoconsultingpartners.com to see our background and experiences.
Real estate owners have had to endure interruptions in their cashflow as a result of various prior events and as everyone knows the Coronavirus event will be the same. With all the information that has come out about the impact, a leadership roadmap should have the following themes:
1. Communication to employees, tenants, BOD, and stakeholders
2. Business operations continuity to Survive and Stabilize
3. Financial planning adjustments to operations and processes
2. Business operations continuity to Survive and Stabilize
3. Financial planning adjustments to operations and processes
At this point, many tenants are looking to survive and stabilize. The strength of a property’s cashflow is its current tenants. If they are having issues, then the real estate owners will feel the pressure on cashflow and making mortgage payments and operating expenses.
The following are various specific actions to consider:
a) Review current lines of credit capacity. If needed, begin discussions with lenders to increase or provide new line of credit.
b) Review collateral which may be needed for additional sources of financing.
c) Review current working capital and financial liquidity.
d) Setup best practices for tenant request for rent relief (i.e., require current financial information, forecasts, etc.).
e) Consider requests from tenants for rent relief and model appropriately.
f) Maintain transparency with lenders on lease restructures, temporary suspension or modification of debt payments, etc.
g) Refer tenants to the federal and state websites which may assist them during this time.
h) Review federal and state programs which may assist you as Landlord.
i) Review insurance policies for coverage as a result of COVID-19.
j) Increase monitoring of accounts receivable and cash receipts.
k) Implement weekly cashflow analysis for impacted properties.
l) Take realistic steps to increase cashflow and reduce expenses.
m) Review additional costs in connection with maintaining Common Areas of properties under federal guidelines concerning Coronavirus.
n) Review Proptech for reducing property costs such as energy costs, etc.
o) Refinance existing loans with lower rate, long term loans.
p) With any changes to cashflow, develop revised cashflow budgets and forecasts for the overall organization.
q) For some property types, consider the repositioning of idle properties, and consider use as medical facilities to assist authorities in providing medical services and testing.
Most of you as CRE owners are aware of the above and these are reminders during these unprecedented times. Our tenants, vendors, and the public need to survive, stabilize and then we will all thrive as we are all in this together.
If CFO Consulting Partners can help your organization with additional support and skill sets of experienced real estate professionals, please do not hesitate to contact us.
We hope your families, employees, and colleagues remain safe and healthy during these unprecedented times.
Mark Sloan, Director — msloan@cfoconsultingpartners.com
Mario Tamasi, Director – mtamasi@cfoconsultingpartners.com
Curated Articles: Insurance Coverage Amidst COVID-19
Amidst the chaos of the COVID-19 outbreak across the United States, it is imperative to understand the insurance coverage issues that arise from a pandemic such as this.
Below are published articles and videos about insurance coverage issues related to COVID-19:
- In an article, titled “Insurance Coverage Issues Related To Coronavirus,” by Christopher Loeber, a partner at Pryor Cashman, Loeber lists three essential steps that should be taken by all corporate policyholders.
- Review and understand your insurance policies.
- Enlist the assistance of insurance professionals.
- Tender claims promptly but pursue coverage patiently.
- In the article titled “Insurance Considerations in Light of COVID-19,” authors, Cecelia Lockner and Carl E. Metzger, partners at Goodwin Procter, discuss insurance-related issues relevant to clients dealing with the outbreak. They highlight the three key issues small businesses need to consider.
- What type of losses might be covered by insurance.
- Claims under insurance policies in the wake of the COVID-19 Outbreak.
- Negotiating and Underwriting Insurance Policies During the COVID-19 Situation.
- In an interview of Finley T. Harckham on Bloomberg, Harckam discusses the role of insurance in a virus fallout. Harckham offers options that businesses should use to ensure against risks like the COVID-19 and the role of insurance in managing virus business interruptions.
CFO Consulting Partners does not endorse any particular publication, direct or indirect. We do assist companies in evaluating its financial management needs and in recommending a best fit. Please feel free to reach out to Allan Tepper, Senior Managing Director, at (646) 650-2028 x701, or by email at atepper@cfoconsultingpartners.com
By Peyton Wille, CFO Consulting Partners
David DeMuth on Exit Planning Meeting Panel
The NJ Technical and Manufacturing Association has invited David DeMuth to their February 26 Exit Planning Meeting to participate in a Panel Discussion.
Below are the details for the event:
You can’t take it with you, so NOW is the best time to start planning for the day when your business is sold or transferred to new ownership.
Join NJTMA for this informative and motivating panel discussion. Our participating experts all have extensive histories in manufacturing buy/sell transactions:
David DeMuth, CPA, CGMA; Senior Managing Director of CFO Consulting Partners
Michael Givner; President, IMG Business Advisors
Kent Schwarz, JD, LL.M; Partner, Becker Law Firm
Program Sponsors:
Also: New Jersey Business Action Center executive director Melanie Willoughby will describe her agency’s advocacy services for manufacturers navigating the State government.
Date: February 26, 2020
Location: Galloping Hill Golf Course, 3 Golf Drive, Kenilworth, NJ 07033
Schedule:
6:00 p.m. Arrival / Networking
6:30 p.m. Dinner begins
6:50 p.m. Introductions and Announcements
7:35 p.m. NJ Business Action Center – “Navigating the State Government”
8:00 p.m. Transition & Exit Planning – Panel Presentation and Q&A
8:55 p.m. Closing
For further information and registration click here.
