💩 Oh sh*t, it’s broken

When I take on a new finance function, the receivables ledger is one of the first places I hit. I’d suggest you do the same, because there’s always trapped cash just sitting in there.

Patrick Mortimer, CFO at Lift Solutions, had just that kind of document. Receivables spread across three ERPs that refused to speak to each other, nothing chased until invoices were 60 days past due, and an AR manager doing 60-hour weeks sending emails by hand. Oh, and a third of the book sitting past due to top it all off. 

…For a business that had just drawn hard on working capital. 

Stuut went live across all three ERPs in four weeks. Average time to payment fell from 42 days to 31. Past-dues? Dropped from roughly a third of the book to a quarter inside a quarter.

Surely this wasn’t how I should be spending my time?!

I was a new BU CFO, in my first role with full P&L, balance sheet and cashflow accountability. And here I was, a few weeks in, reviewing intercompany balance sheet reconciliations in detail...

I hadn’t done this shit in years, not since I was a finance manager. But yet… I’d followed my nose through my onboarding, and all roads had led here.

And my nose hadn’t been wrong.

This was a complex, multi-site business with just over $1bn in revenue. There were over a dozen sites, all trading with each other. A huge surface area to cover, each with its own blend of operational issues: quantity discrepancies, disputes over quality, different versions of the ‘truth’ on the correct transfer price.

The whole thing felt like I’d been served a shit sandwich (with no butter).

Every sales report I’d read seemed tied to an alternate version of reality. Every conversation surfaced disputes and disagreements between locations.

The muscle memory I’d built in my earliest days in audit kicked in. I just kept asking questions, and the answers all dragged me back to intercompany accounting.

Sure, this all sounds like an ‘accountant’s problem.’ But it was getting in the way of EVERYTHING.

Product margins were wrong. Operational KPIs were wrong. Even getting to a clean view of revenue and margin by site involved arguments over eliminations, quantities, and transfer prices. We had no real idea where and how we were making money... or even, frankly, IF we were making money.

This was an aggressively decentralized finance team, all working to protect their own fiefdoms. Each had its own reasons why their version of reality was right, ranging from somewhat credible to total nonsense.

But what was missing most of all was strong central finance leadership making sure the sum of the parts aggregated to a defensible, accurate whole.

These weren’t accounting-only issues... they weren’t even finance-only issues. They started in the operation. Deep-rooted process issues, like a shit snowball getting bigger as it rolled downhill. The intercompany recs were just where that shit eventually came to rest.

The questions went on…

Why were the operational processes so broken? Why weren’t the local finance teams sorting out issues between themselves? Why was the central team too weak to identify and force resolution? And if this wasn’t working, what did it say about everything else?

I had no team capable of supporting me in fixing it. In fact, some would likely actively work against it. And that was just in finance. What about the operators, who had clearly been successful in railroading finance into their own agenda?

The weight of what I’d taken on started to set in as I realized this was now my mess, and mine alone, to fix. I’d be starting from scratch.

I felt this hollow, empty feeling in my head and stomach. Almost like dizziness. One time, it even made me physically sick (I’ve never told anyone that before.)

But for all the anxiety, there was also an excitement. A kind of ‘Fuck it, I can fix it’ energy.

I didn’t have all the answers. Far from it. But I had control of the agenda and the resources, and as long as I had that, I had confidence I’d figure it out. Whatever that meant.

Still, I’d already made one mistake. I’d let myself get into the chair, dead center of the firing range, blind to what I was getting into.

And if nothing else… I would never repeat that mistake.

I’m back after some time off during August, and we’re straight back into a brand-new series…

I only ever write about what I know and what I’ve experienced, but I feel particularly well qualified to cover this topic.

I built my career on taking broken finance functions, where even the basic plumbing had failed, and nursing them back to safety before dragging them into delivering value.

A very successful CFO advised me early on to "run into burning buildings" because that's where great finance leaders were built. I built my career on the principle that when 9 in 10 good finance pros would say, "I'd never touch that," I’d be the one who says, "Fuck it, looks like fun. I'll fix it."

I’ve turned down countless CFO roles, including some at much bigger, better-known companies, because they just seemed… too damn boring. Everything worked already and that just felt like easy mode to me.

I’m probably addicted to the sense of impact you get from fixing something broken. And as a happy by-product it forces a deep understanding of the fundamental wiring of how business finance works.

Some of it was driven by ego, no doubt, but I also just think I’m built that way. My dad was an engineer, and fixing stuff is somehow in my blood. Even now, I’m motivated by the opportunity to “fix the future of finance” at scale, and bend it in the direction I know is right.

So without further ado, let’s get into it. And as ever, let’s start with some fundamentals…

What do you see when I say “a shitshow”?

Poor systems? A web of spreadsheets? Late nights? That’s actually not quite what I mean here.

We need to separate ugly and inefficient from broken and ineffective.

Just because something is ugly does not mean it is broken.

One of the best finance teams I worked in early in my career was incredibly manual. Heavily reliant on spreadsheets, Access databases, and good people. But the output from that team was outstanding: fast, accurate reporting and incredible business partnering.

Was it inefficient? Yes.

Ripe for ‘transformation’? Absolutely.

But it worked… it was no shitshow.

Manual finance can still fundamentally work. And it is far less damaging and risky than a business with a shiny, automated, but fundamentally broken, finance function.

So, when I talk about a shitshow, I’m talking about situations where the finance function is not producing trusted output:

And often, the team you’ve inherited is too weak to pull you out of it.

The top-left quadrant of the above graphic is also the best place from which to launch a classic finance transformation.

That manual finance team I described earlier was an outstanding platform for the transformation wave that followed. The processes were robust as hell; they had to be. The people and culture were fabulous. The workflows and systems just needed to modernize and catch up.

Many finance transformations fail because they try to skip straight from the bottom left to the top right. They try to automate and transform a function into the future before fixing its foundations.

Ironically, that’s how finance teams can end up in the bottom-right quadrant: shiny packaging wrapped around broken finance. The worst of all worlds.

The job is sequential.

First, fix the shitshow. Then transform it.

And that crucial move, from bottom left to top left, is what this series is about.

For all the talk about sexy finance transformation programs, I still hear from far more CFOs wrestling with getting out of that bottom left box than trying to move from top-left to top-right.

Fixing broken finance functions is not for every CFO. It takes a certain kind of capability, character, and mindset (more on that in a bit).

But finance dysfunction comes in different shapes and severities, ranging from irritating to utterly existential.

The key for you as a CFO is being honest about how big your appetite is for fixing broken shit. Frankly, how big a shovel you are prepared to wield:

You can crudely think about four different levels, and where your appetite for fixing sits on this scale. And no… level 4 is not missing.

Some CFOs live operating at Level 0. They have no interest in building a function. They want things to work, then ride the glory of being part of a successful business with a nice CFO title. Hats off to them… it’s probably even the smart way (until they land in a bad one without realizing it, and don’t have a clue what to do.)

Most CFOs have an appetite for inheriting Level 1 or Level 2 issues. Enough space to build and put their stamp on things, without taking on serious external exposure. They know roughly where the bottom is.

Level 3 is where many finance leaders start to tap out. Their stinky secret now carries a real risk of becoming a story they have to tell to stakeholders: auditors, banks, investors, maybe even regulators.

Often, fixing a Level 3 means attaching some of your own personal credibility to the story. Delivering your fix-it plan under the heat of scrutiny from the stakeholders. If you succeed, you can supercharge your reputation further. This can work in reverse if you fail.

Level 5 is another huge leap. Now you have to do all of that under the stress of an imminent threat to the business’ survival. Most likely a performance or cash crisis.

In this series, we are going to focus more on the issues inside the finance function than the wider business performance crisis. Level 3 is probably a good proxy for the territory we’ll spend most of our time in. We have a whole series on business turnaround coming next year.

But know this: Levels 3 and 5 are much, much more challenging because you are no longer fully in control of the agenda. 

And at Level 5, fixing the finance function, already in flames, probably isn’t even priority number one. It becomes a side quest in the bigger game of survival or restructuring.

Before you take on any major finance function repair job as CFO, you need to answer three questions:

Let’s dive into each in turn.

Thinking you are inheriting a Level 1 only to find out it is a Level 3 is how inexperienced CFOs get themselves into serious trouble.

And it’s incredibly common. In fact, I would estimate half of all the questions submitted to my Mailbag are some variant of this exact problem.

It shocks me how little diligence CFOs do on the roles they take on. Too often, CFOs are surprised by the state of what they inherited.

I’ve screwed this up too. But be clear: it is the CFO’s mistake.

Don’t get me wrong, you’ll never uncover all of the unknowns. But you can do enough to know what you don’t know, and to at least make sure you don’t end up in a Level 5 shitshow when you thought it was a Level 1.

Here are some practical steps you can take before you take the role:

If you find yourself deep into a selection process and negotiating the package, that’s a good time to say you have some ‘standard diligence’ you like to perform, just to make sure you are definitely the right person to help. And that it should only take a day or two. A serious board will respect this.

Remember, the goal here isn’t to get a total picture, that’s impossible. It’s simply to make sure the reality is no worse than your shitshow tolerance.

Knowing what kind of mess you are getting into is vital, but it’s not the only question before you take the job.

Assuming you are taking on a fix-it job that is at least Level 2, the other thing you need to know is whether you will be allowed to fix it.

This matters because fixing it will likely mean exposing some uncomfortable and embarrassing  truths. This is all about making sure you have control of the agenda and resources to fix it.

The key questions are:

I would back myself to fix almost any finance function with that control. Without it, I wouldn’t take on even the most basic fix-it job.

Maybe you are thinking of taking on your first genuine fix-it job. Or perhaps venturing into Level 3 or Level 5 for the first time.

You are inheriting a lot of variables. A lot of unknowns that you cannot control. Which means you need to control the things you can.

Specifically, make sure you are operating in an industry, at a scale, and in a situation you understand.

Learning a new industry, business model, and CFO environment while simultaneously repairing broken finance is a recipe for failure. The more familiar the ground, the deeper you can safely go.

And it’s not just about familiarity at work. It’s also about stability in your personal life, whether that’s your physical health, family relationships, financial situation, or mental health.

You are going to need those foundations to be rock solid to absorb the chaos and feelings of loneliness that come with a deep functional rebuild.

There was a major, unexpected health issue in my close family six months into my most difficult role. It totally rocked me. I managed to battle through it at work and at home, but it was a miracle nothing imploded.

It all worked out OK in the end, and I’m definitely tougher for it. But in a parallel universe where I knew what my family was about to go through, I never would have taken a level 5 role.

Over the next four weeks, we’re going to work through the journey from inheriting the mess to being ready to transform it.

Here’s what’s in store:

Post I — Today — Inheriting a shitshow

Post II — Catch the bottom

Post III — Repair mode

Post IV — Ready to transform

The temptation when you inherit a mess is to start designing the future: new systems, new org structure, automation, transformation roadmap.

That is normally the wrong sequence.

You cannot ‘Transform’ (capital T) a Shitshow (capital S). You have to repair it first.

That means establishing truth, control, capability and stability before you start building what comes next. Otherwise, you are simply automating broken processes and scaling bad decisions.

And while you should do enough diligence before taking the role to have a sense of what you are in for, you can’t truly diagnose the issues until you are in the seat and feel their full weight.

Before you can repair anything properly, you first need to find the bottom.

How you do that is where we head next week.

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Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.