📬 The other F-word (fraud)

Every finance team I’ve seen fail at software implementations has a few things in common: read a McKinsey deck, bought a shiny tool, called it ‘transformation’...only to go back to gluing everything back together in spreadsheets. 

That’s like trying to summit Everest barefoot.

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👉🏼 Tied in knots and need advice? Send me your questions, and you might just see yourself in next week’s Mailbag. Submit anonymously using the button below:

Here’s what’s on the menu:

Now, let’s get into it.

Harry from USA

I am the CFO of an LMM Independent Sponsor-backed Industrials services business. First time CFO, under 40, five years in.

The original business line was a COVID bubble service and has plummeted, causing capital structure issues. The organic new service growth and eight expansion/add-on M&A have been a home run, otherwise the business might be in BK.

My relationship has decayed the past two years with the PE group after a good first two years. Multiple raises along the way, including five months ago.

The PE group told me to report fraudulent addbacks. They eventually caved after I pushed back on committing fraud. They've required several other dark grey actions related to accounting and forecasting, but I'll spare further details. 

I am direct and the PE guys don't like that. I have called them out on shenanigans numerous times. Covenants are very tight now and the working relationship has gotten more difficult. The only positive is they are unsophisticated and less involved than most PE.

I've been ready to move on, but I can't keep any of my equity if I resign. We're going to sell the company in 12-18 months. I will make $0.5-$1.5m.

Any advice on powering through and putting up with tough working relationships, or walking away from the equity? I've been trying to stick it out given my age, first time CFO, financial outcome, fear of them badmouthing me down the road, and what an exit on the resume this young could lead to. Patience is easier said than done!

Hey Harry,

Sounds like a tricky one.

First up, I’d want you to define “fraudulent addbacks” very carefully.

Fraud is a big word. Especially when combined with a direct personality and a deteriorating sponsor relationship. You absolutely need to use that word when it fits. But you also need to be damn sure it fits before you throw it around, because it is a difficult bell to un-ring.

Here are my questions:

None of that means you embrace the nonsense. It just changes how you handle it.

If they are asking you to include fictitious, material addbacks in numbers that go to a lender, and you are expected to sign a covenant certificate off the back of it, then you can look them in the eye and tell them to fuck off. Use the fraud word liberally there.

If they are making their own internal board deck look prettier with some aggressive addback fairy dust, then the conversation may be different. You can still say: “Who are we kidding here?” But you may not need to go straight to DEFCON 1.

Either way, it goes without saying that you are right to stand firm on putting your name to things that are knowingly falsified.

With regard to your specific situation, I would like to see you push through this, grab the bag, get the exit on the resume, and get the experience of actually solving this issue instead of running away from it.

Especially with so little time left to run. This is assuming you are not being asked to cross a red line.

It sounds like you need a relationship reset moment.

You have equity and want it to be valuable. They have equity and want theirs to be valuable. That is the alignment PE is supposed to create, so rebase the relationship from there.

I would go to the operating partner, or whoever has the most influence and the least ego, and ask for a clear-the-air conversation. Beer, coffee, whatever fits the relationship.

Say something like:

“Look, I know we’ve had a few difficult moments. I want to reassure you that the reason I push hard is because I care about getting the best outcome for this business. We are aligned economically. I want the exit to happen, and I want it to be a great result for everyone. I will do whatever I can to help get us there, but I need to operate inside the ethical boundaries of the CFO role. Within that boundary, I am all in. By the time we exit, you may never want to see me again, and that’s fine. But between now and then, I want us focused on the finish line together.”

The caveat here is equity value.

If covenants are that tight, you need to be honest with yourself about whether your equity is actually worth what you think it is. If the cap structure is broken, the lenders are circling, (or if your sponsor starts looking hard enough for someone to blame), that $0.5m to $1.5m may be a nice dream…

So I would run your own downside case:

TLDR: Have a moment to reset the relationship to show your aligned interest, while restating your own ethical red lines. 

Eli from Atlanta, GA, USA

We're trying to scale revenue in one part of our business 10x over five years. Year one delivered almost nothing. The core business is contracting unfortunately.

Looking back, I think the problem is we planned like we were still in startup mode—no multi-year roadmap, no clear milestones for when we'd see evidence it's working, no visibility into what needs to happen in Year two, three, four. Accountability and incentives are missing.

Our culture is execution-focused and quarter-to-quarter.

How do you introduce long-range planning function to a scaling initiative when the company has set patterns and cadences that leave a lot of the utility of Long Range Planning on the table?

Hey Eli,

It sounds like you are at an interesting moment.

In the early days, agility and informality are a tailwind to growth. But as a business becomes more complex, with more priorities, more management layers, and more competing demands, the same things can become a headwind. Suddenly the informality that made you fast, starts making it impossible to get anything done.

I have been in a business that struggled with this transition myself. It is one hell of a cultural reset.

Which brings me to your specific question.

I’m not sure this is a problem you will long-range-plan your way out of.

A 10x revenue goal over five years, by my math, is roughly a 60% CAGR. That is breakout startup-style growth, even if it is trapped inside a bigger business. And if year one delivered almost nothing, I would be careful about assuming the missing piece is a five-year plan.

If your execution model failed to deliver anything meaningful in year one, making the spreadsheet longer may just make the problem bigger and more beautifully formatted.

This sounds more like an accountability, focus, and resource problem. So I would start by making it smaller, not bigger. Who owns the 10x goal?

I mean actually owns it. Not “the exec team”. Not “commercial”. Not “growth”. One name.

Then ask what resources that person needs to deliver the next stage. People, product, marketing, technology, capital, sales capacity, management attention. Whatever it is.

And then ask what needs to be true in the next 12 months to prove this thing is working.

“What must be true by the end of year two for us to still believe 10x is possible by year five?”

That is a much more useful question for a quarter-to-quarter execution culture.

Maybe the five-year goal is 10x, but the next practical milestone could be 2x or 2.5x in 12 months. That is still hard. But it is close enough for the business to understand, digest, and execute against, while getting you back toward the growth curve.

Then you can break that 12-month target into the real drivers, and leading indicators. Leads, conversion, capacity, pricing, product readiness, retention, locations, channels, whatever matters in your business. Put names, resources, milestones, and incentives against them.

That is where momentum comes from.

And if your business is comfortable in a quarterly execution rhythm, it should lap that up. Whereas you may struggle to get people excited about year four and year five.

You can still use the longer-range model in the background to understand what the business needs to become, but bring the organization a nearer-term execution frame it can actually use.

The long-range planning point becomes more interesting when it exposes trade-offs. If delivering this 10x initiative requires serious resources, then where is that resource coming from? Is it being diverted from the contracting core business? Is that the right answer?

That is the conversation long-range planning should force.

Over time, as the business gets better at this, you can stretch the horizon. Start with 12 months, then 24, then a proper five-year planning rhythm. But trying to force a full long-range planning process into a culture that only knows quarterly execution may be like asking a fish to climb a tree.

TLDR: Don’t start with a five-year plan. Start with shorter interval leading indicators, ownership, resources, and the next proof point.

Wonder from Boston, MA, USA

Thank you for the newsletter, Secret CFO. It is very helpful.

I am new to the CFO game, and leading finance for a small home services business in the USA. The company's usual customer acquisition vehicle is digital ads combined with organic traffic. There is a lot of interest in the company to build a brand and create awareness in the geography we operate in.

We all believe investing in brand awareness of our services would help us get more customers organically. I understand the value in this investment, but I am at a loss of how finance can help regulate the branding investments. I realize there is no short-term ROI, but how do we know if we are in the right direction, and whether we should do more of one initiative vs the other. 

Basically, brand investment, especially when we have not done any in the past, seems a bit amorphous and I am a little confused as to how I could guide the company effectively in this endeavor.

Thanks for the question, Wonder.

I have quite a bit of experience with branded vs non-branded businesses, so this is a topic I enjoy. Part of the fun in building my media business has been building it as a brand, (albeit a pseudonymous one!)

And your question already puts you ahead of many finance pros, because you recognize two things at the same time: good branding is magic, and meanwhile brand can feel painfully amorphous, especially to finance.

A few things to know.

First, good branding can be extremely valuable. It may not affect sales and cash flow tomorrow morning, but it absolutely can over the long run, and in a compounding kind of way. I have worked in industries where a strong brand could mean double the EBIT margin and a valuation multiple maybe 50% higher than a weaker brand, on similar revenue and similar operations. So yes, brand can be a serious value creation driver.

Second, good branding is hard. It is not just a logo and a strapline, which is the common finance-person misconception. Good branding is storytelling, positioning, memory, trust, and emotional association. That makes it subjective. Which means investment in it will always involve a bit of stumbling around in the unknown. It is “create something from nothing” work.

Third, good branding is a long-term commitment. You can destroy a brand much faster than you can build one. Coca-Cola has a powerful brand because it has been relentless for decades. Nike, on the other hand, has made a mess of its brand over the last ten years by becoming less clear on what it stands for (and destroying the value of my Air Jordan collection at the same time).

So, back to your question.

You should forget about clean short-term ROI if you are genuinely investing in brand creation. This is not a digital ad campaign.

Brand investment is a deployment of capital over several years, with uncertain payback. That does not make it bad. It just means you need to govern it differently, while respecting that it is ultimately a creative process.

But despite all that, you still need to regulate the spend.

I would do that in three ways.

First, make sure someone owns the brand creation and investment. A good brand is an extension of what the business actually is. You cannot put lipstick on a pig, so you need a strong internal custodian. That might be the CEO, VP Marketing, or someone else, but somebody has to own the north star: what the business stands for, what it wants to be known for, and what message it wants to land in the market.

Second, fund it in rounds. Do not sign off a giant annual brand budget. Start small. Agree what you are trying to learn. Fund the next stage only when the work is good enough and the early signals support doing more.

Those signals are not short-term financial ROI. They might be research results in the short term. Over time, they might become branded search, direct traffic, organic lead growth, local awareness, reviews, referral rates, conversion rates, repeat enquiries, or improved efficiency in your paid channels. In a home services business, trust and familiarity are super important. If more people know you, search for you, click you, recommend you, and convert when they land, something is probably working.

Third, compare it properly against other uses of capital. It sounds like there is enough curiosity around brand building in the business to commit to ring-fence some exploratory budget. Define who owns it, and define the size. Big enough to learn something, but small enough that if it is a complete waste of money, it does not cause you a problem.

Naturally, a dollar into this is a dollar away from something else. More digital ads. More sales capacity. Better scheduling. Better service quality. Better reviews. More vehicles. A new geography. Finance’s job is to keep asking whether brand is the best next dollar compared with those alternatives, while also giving it enough oxygen to breathe and develop into something.

Then, if the early work is promising, you can move to a bigger brand activation budget. That is another level of commitment. After that comes full launch, rollout, and ongoing maintenance. Each stage should have a clearer owner, clearer budget, and clearer evidence that the business wants to keep going.

So think of it like long-term capital allocation.

You will not get a neat model that tells you it’s working, but you can still control the size of the bet, the quality of the thinking, the evidence you are seeing, and the opportunity cost of the capital.

TLDR: Brand is long-term capital allocation. Fund it in stages, track leading indicators, and make someone own the story.

A few of the biggest stories that CFOs should pay attention to. This is also the section you might not want to see your name in.

Polymarket gets its first CFO

It’s a good bet (no pun intended) that hiring Warren Jenson, former CFO at Amazon, NBC, Delta Air Lines, and Electronic Arts, as CFO is a sign that Polymarket sees some tough fights ahead. 35 years CFO-ing at household names in the tech and media space… he’s a serious hire for a young company. Would love to be a fly on the wall

HSBC CFO steps down

The first female CFO of the UK’s largest bank leaves with a 125% increase in share price during her tenure. A well earned rest.

Nvidia CFO says company wants to “get paid twice”

We’d all like to get paid twice, Colette… Super interesting that 44% of Nvidia’s current revenue comes from just three customers.

ICYMI, here are some of my favorite finance/business social media posts from this week.

Speaking of customer concentration risk…

Meanwhile in more important AI news:

Last weekend’s Playbook dove into flushing out hidden problems in part two of the “Inheriting a Shitshow Finance Function” series.

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