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Curated Articles: Insurance Coverage Amidst COVID-19

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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

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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.

CFO Consulting Partners Reaches Its 14-Year Milestone

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In 2006, David DeMuth and Allan Tepper formed CFO Consulting Partners. We focused on addressing the senior-level accounting and finance needs of companies whose accounting firms could no longer adequately address these needs due to independence issues. Eric Segal joined the partnership in 2009 to extend its capabilities to Financial Services and Insurance. Our firm began by providing fractional CFO services and that continues as a core service today. Over time, we added new capabilities including: M&A buy and sell-side services, private equity services, management and supervision of assurance processes, finance and accounting process improvement, finance transformation, SEC, regulatory and BOD/internal reporting.
Over the years, we built expertise in a broad range of industries, including banking, FinTech and other financial services businesses, business services, manufacturing, healthcare, technology, real estate and nonprofit.
As we reflect on what we have achieved since our inception, some notable accomplishments stand out:
  • We have developed significant expertise in helping companies achieve their business and accounting & finance goals, including buying and selling businesses, raising capital, strengthening internal controls, improving cash flow management and developing growth plans.
  • Clients have benefited from our all-senior-level financial management team who have “been there, done that.” Our people have held CFO or Controller positions in large and small companies, most are CPAs from major firms and have advanced degrees.
  • Clients have been aided by our firm-wide team approach to problem solving. Clients have access to the expertise of all of our team members to diagnose and solve problems.
  • Clients have prospered from having a boutique firm that moves quickly and has the depth of knowledge and experience to meet their needs.
  • Finally, we are proud to say that our clients recognize us as the “go-to” firm for CFO services provided to the community banking industry.
As we celebrate our 14th year, we want to thank our clients, referral sources, partners and team members. We simply wouldn’t exist without your support.
We look forward to continuing to serve the needs of small and midsized companies, and we are proud of the benefits we offer to our clients.

 

Thank you.

 

Allan Tepper, Sr. Managing Director, CFO Consulting Partners
(646) 650-2028 x701
 
David DeMuth, Sr. Managing Director, CFO Consulting Partners,
609-309-9307 x700
 
Eric Segal, Managing Director, CFO Consulting Partners
609-309-9307 x702

CFO Consulting Partners is a Proud Sponsor of Network for a Cause (A Joint ACG & TMA Reception)

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Join the region’s leading deal professionals from ACG Philadelphia and TMA for a night of networking for a great cause!

Enjoy cocktails, hors d’oeuvres, and a Silent Auction to benefit Bringing Hope Home. 

ACG & TMA have raised nearly $50,000 to support organizations in need since 2013!

February 27, 2020  |  6:00 – 8:30 pm
The Lounge @ 1735
1735 Market Street, 5th Floor | Philadelphia

Cost: $75
(includes 2 1/2 hours of cocktails and hors d’oeuvres)

REGISTER NOW!

Case Study – Improving the Finance Function of a Private Equity Backed Technology Company

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Industry: Private Equity
Type of Service: Accounting & Finance Outsourcing

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.

Results

The Company was able for the first time to prepare timely and accurate monthly financial statements. In addition, we facilitated the creation and implementation of “dashboards” to help senior management and the Board monitor the key business metrics of the company. CFOCP also commenced implementing several of the processes and tools recommended by CFOCP.  The Company also moved forward with hiring of a permanent CFO and implementing CFOCP’s recommendation for the reorganization of the accounting department.

Curated Articles: Hitting the Wall

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As companies grow, at some point many will “hit a wall.” It is likely, based on prior studies, that the if and when this may occur will not have been predicted by company management.
Below are published articles related to companies hitting the wall:
  • Eric M. Ross published an article, titled “Hitting the Wall,” in which he mapped out the typical timeline for companies as they grow and expand. In order for companies to remain profitable and have continued growth in sales after they’ve hit the wall, Ross explains the key areas of focus, which are:
    • Management approach
    • Organization, processes, and systems
    • Working capital availability
  • The most suitable person to understand how to predict when a company will hit its wall would be someone who has been there before. In an article from Inc. Magazine, also titled “Hitting the Wall,” the founder James Bildner of J. Bildner & Sons explains what indicators to look for before a company hits the wall. He stresses that the main theme for all companies that reach this point of stagnation is the same, poor cash flows.
  • In Mike Rogers article, “How to Avoid Hitting the Growth Wall,” he dives into the management techniques that can be detrimental for companies as they grow. He lists the five management practices that he feels stalls growth:
    • Treadmill Mentality
    • Management by Insanity
    • Rear-View Mirror Management
    • Management by ESP
    • Midas-Touch Management

Case Study – Turnaround of Accounting and Finance Function

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Industry: Private Equity
Type of Service: Accounting & Finance Outsourcing

 

Issue:

The Board of a Private Equity portfolio company had decided to replace the current CFO, primarily due to its lack of confidence resulting from inaccurate projections and improper accounting treatment. An additional complication was that the company was running out of cash and needed to raise funds quickly, which muddied the issue of hiring a permanent CFO. The company was in the process of raising additional debt and needed the immediate support of a CFO in whom it could have confidence to lead the finance function, to become an effective member of the management team, and to partner with the CEO in the fund-raising process. Concurrently, the Company was also considering divesting a portion of its business.

What We Did:

We “hit the ground running” and immediately commenced working with the CEO and management team to construct a credible business plan and forecast, including both short and longer-term cash flows in order to facilitate effective conversations with the Board and investors/lenders. In addition, we actively participated in the negotiation of successful bridge financing, working closely with legal advisors and the Board. We also created and maintained a data room to facilitate discussions with potential investors or buyers, including responding to multiple due diligence requests, and discussions with potential buyers.

At the same time, we assumed the day-to-day management of the finance/accounting team, and we implemented best practices in terms of cash management and internal controls. Further, we simplified the forecasting process, which resulted in more accurate projections, and we provided accounting policy guidance and confirmed the proper treatment of significant transactions, which had been misstated in prior periods.

Outcome:

Despite its poor performance and prior lack of credibility, the Company was able to negotiate a successful short-term bridge financing, and subsequent financing. It also was able to effectively manage its cash flow to meet the forecast on which the financing was based. The credibility with the Board was restored. The key accounting staff were retained during this challenging period and we exceeded the original objectives of the engagement, which contributed to the Company extending the engagement from the originally estimated 3-4 months to a full year.
by John Gross, Director, CFO Consulting Partners

Newsletter – October 2019

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Insurance Update – Includes our Takeaways from the Annual SIFM Conference

We attended the Annual Conference of the Society of Insurance Financial Management held in Atlantic City, New Jersey, on September 15-18, 2019.  This excellent and well-attended Conference brought together finance professionals from insurance companies and professional service providers to discuss topics of current interest.  This update incorporates a few of the themes introduced by speakers at the Conference.
Overall:
Financial leaders in insurance will continue to be challenged by our rapidly changing industry and the real need to more quickly deliver meaningful financial information.  Many financial executives are wrestling with support of innovative new products, how to best leverage new technology, accounting and tax changes, and the need to maintain a quality high workforce.
Meeting Evolving Customer Needs:
 
The needs of the industry’s customers continue to change, and finance teams need to be able to support their business partners in meeting those needs.  This will require speed, agility and affordable cost.  One potential enabler is automation, but the base finance and accounting processes themselves need to be evaluated to make sure they are optimized for existing technology and to avoid “paving the cow path” when new technology is implemented.
Where there is a lack of comfort with a source of management and financial information, for any reason, multiple sources tend to proliferate, which creates a need for a single source of the truth.  Until that single source is achieved, the multiple sources need to be reconciled each and every reporting cycle. That effort, which can be considerable, should achieve the obvious control objectives as well as underscore the need to eliminate the multiple sources.
Implementing New GAAP for Credit Losses:
This new accounting standard has more applicability to insurers than some may realize.  First, an outline of the effective dates for calendar year-end entities, incorporating the FASB’s tentative decision in October to defer certain dates:
      1. Public business entities that meet the definition of an SEC filer, excluding “smaller reporting companies” (as defined by the SEC) – January 2020
      2. All other entities – January 2023
Most insurers will expect the new GAAP (ASU 2016-13) to apply to held to maturity investments and commercial mortgage loans, BUT it also applies to reinsurance receivables!  The new GAAP model, Current Expected Credit Losses (CECL), requires reserving expected future losses at the time the asset is initially recorded (there is no “probable” trigger anymore).
Reinsurance receivables therefore are required to be viewed as having a probability of default, which requires estimating both that probability and the amount of loss that would occur in the event of a default.  There are several practical considerations to keep in mind in making these estimates:
  • For probability of default, where the insurer has no history of having experienced defaults in its reinsurance arrangements, it may be necessary to use industry statistics;
  • For amount of loss in the event of default, the required reserve may not be very sensitive to this estimate if the probability of loss is low.
For statutory accounting purposes, the rules on credit losses have not changed yet, but we can reasonably expect those rules to follow suit after the GAAP world has developed some experience applying the new standard.
Tips for Insurance Company CFO’s & CEO’s:
 
Merger & Acquisition-
  • As brokers perform due diligence on acquisition opportunities, client agreements should be reviewed to ensure that these agreements allow for transfer of the contract to the acquiring company.  Otherwise the acquiring company could experience more rapid client attrition than anticipated.
  • With the reduction in tax rates, as companies model acquisition opportunities, companies should be sure to incorporate these lower rates in the net operating loss forward calculations
Supplemental Compensation-
  • Brokers need to thoroughly understand the terms of their Carriers’ Supplemental Compensation Agreements. A worthwhile exercise is to read each agreement and recompute the amount that should have been received for each of the last few prior payment periods.  Then compare these calculations to the computations provided by the Carrier.
Product and Business Unit Performance-
  • Some companies are using expedient methodologies to allocate corporate overhead across business units or products – i.e., the allocation of overhead as a percent of revenue.  In other cases, when business drivers are utilized to allocate these costs, expenditures needed to support the rapid future growth of one product are inappropriately distributed across all products.  This occurs because current period business drivers are used to compute the current period cost allocations.  As a result of these two allocation approaches, Product and Business Unit internal reports could be inaccurate.
  • Business intelligence tools and complex spreadsheets are often used to provide additional analysis.  Financial information on these additional profit segments is used to make key decisions for business in a particular geography, industry, sub-product, or marketing channel. Control and review processes must be established in order to prevent the same revenue from being counted twice or partial capturing of certain costs.
The Insurance Industry team at CFO Consulting Partners are senior level professionals with CFO, Controller and Rating Agency experience.  We have helped Carriers and Brokers manage credit ratings, implement strategic planning and business analysis functions, improve financial reporting and accounting processes, and strengthen internal controls.
by Michael Sheahan, Director, CFO Consulting Partners
and Paul Karr, Director, CFO Consulting Partners

Biweekly Newsletter – Machine Learning and Artificial Intelligence

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Machine learning has the potential to disrupt every industry. A computer’s ability to iterate through data and solve complex mathematical calculations is developing rapidly with improved processing speeds and data storage.

SAS Insights defines machine learning as “a method of data analysis that automates analytical model building. It is a branch of artificial intelligence based on the idea that systems can learn from data, identify patterns, and make decisions with minimal human intervention.”

“Humans can typically create one or two good [financial] models a week; machine learning can create thousands of models a week”

-Thomas H. Davenport, an excerpt from The Wall Street Journal

Below are recently published articles surrounding the world of AI:

  • How are top-performing companies in all industries using AI in marketing to improve their brand image and revenue? Louis Columbus’s article, “10 Charts That Will Change Your Perspective of AI in Marketing” include staggering statistics on how AI “enables marketers to understand sales cycles better, correlating their strategies and spending to sales results.”
  • How does one value the most critical asset of modern business, information? In Virginia Collins and Joel Lanz’s article titled “Managing Data as an Asset,” Collins and Lanz explain how “treating data as an asset can enhance its value, facilitate organizational activities, and achieve strategic goals.”
  • In Steve Lohr’s article, “How Do You Govern Machines That Can Learn? Policymakers Are Trying to Figure That Out,” Lohr analyzes brainstormed legislation by The Organization for Economic Cooperation and Development, whose policy focused on AI, attempts to “foster responsible economic development, balancing innovation and social protections.”

By Zach Gould, CFO Consulting Partners

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