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The CFO provides perspective on talking the banker's talk, keeping tabs on receivables, and the "science" of import taxes.
Marie Leone, CFO.com | US
April 15, 2009
Billy Pymm plays attack. That's not his management style, although he and the other senior managers at Maverik Lacrosse label themselves entrepreneurs. Pymm, 35, is an attackman, the equivalent of a forward in hockey or soccer, in the Gotham Lacrosse league, an organization mostly made up of Wall Street denizens that is sponsored by Maverik, a maker of lacrosse equipment and apparel.
Finance and lacrosse both may require the right combination of brawn and brains to out-muscle and out-smart opponents. But they also require speed, finesse, and an intimate knowledge of the game, something Maverik has built in just five years — and is counting on now as it faces a sagging economy and new challenges from behemoths such as Nike and Reebok, which have recently entered the lacrosse equipment and apparel market.
Pymm, like the rest of the Maverik management team, played Division I lacrosse in college. He was scoring goals for the Friars of Providence College while majoring in finance, and then received his MBA from the same school, while coaching its men's lacrosse team. Armed with his degrees, he took a job in commercial banking at what used to be Fleet Bank, before it was acquired by Bank of America in 2004. He was a credit analyst covering small and mid-size companies that were searching for financing, experience that has come in handy now that he is a finance chief.
After two years as an analyst, Pymm made his first entrepreneurial move, taking a job at start-up software maker Jenzabar, where he worked on the launch of an academic-advisor module to help collegiate athletes and their coaches keep better track of grades and schoolwork while on the road. After the product launch, Pymm returned to his roots to work in the family business, RedyRef Kiosk Solutions, at a time when the phone booth manufacturing company was making the switch from telephone to computer kiosks — the kind that are ubiquitous at airport terminals.
By 2004, Pymm was CFO of Maverik, an edgy start-up company that reportedly brought a stronger, lighter lacrosse stick to market. As is the case with most smaller companies — Maverik generates less than $250 million in revenue a year — the finance chief wears many hats. Indeed, Pymm says his experience with materials sourcing, manufacturing, and importing gained while at RedyRef helped guide the new lacrosse stick through production and onto the shelves of retail stores. He also used RedyRef's accounting and financial processes as a template for Maverik's finance department, which has grown to 14 full-time employees.
Pymm contends that compared to the rest of the management team, he is on the "bottom of the list" when it comes to lacrosse play. Most of the other executive partners are former All-American lacrosse players from schools like Johns Hopkins, Syracuse, and the University of Virginia, and two of those partners — company founder and chief executive John Gagliardi and marketing director Jay Jalbert — are members of the U.S. men's national lacrosse team, better known as Team USA.
But Pymm's status among the Maverik lacrosse stars hasn't hindered his ability to keep score of the company's finances. CFO.com talked to Pymm recently about how the finance chief is handling the current credit crisis and the growth challenges that a small manufacturer faces during an economic slump. Here's what he had to say.
You still play lacrosse. Is it all just fun and games?
We started a lacrosse league in New York City about three years ago called Gotham Lacrosse. I play there, and Maverik is the league sponsor, so we use a lot of the Maverik apparel and promote [the company]. We got a lot of press coverage because it's mostly Wall Street teams. A lot of the Wall Street guys played a pretty high level of college lacrosse. Merrill Lynch and Bear Stearns have teams. Despite the whole financial collapse, the teams stayed together. It was a real good networking opportunity. Even kids in college play for companies where they were interns. It's a chance for them to sort of show their stuff and hopefully get a job next year.
How has your first finance job at Fleet helped you in your current job?
I'm on the other side of the table now, and it's nice to know what banks are looking for, and to talk the lingo. It also helps that [they] know I was in a similar position at one time. Our bank liked the idea that I had a background with Fleet. They know that I know balance sheets, I know income statements, I know cash flow. So it definitely helped, more than hurt.
Did Maverik use venture funding to launch the company?
No, no venture funding. It was some of our own money, just to open the doors. Once we knew we had something [to sell] and wanted to expand, we went to angel investors and raised initial funding to start developing an array of products. Every year after that we've just looked at our situation to figure out where the company was financially — what's changed, which direction we want to go. That's what we did for three rounds of private financing during the first three years.
But since the initial stages, you've had to rely on bank financing, right?
We are trying to build credit lines. We're small and new, and the banks didn't want to take the risk because of the credit crunch. So it's been a battle, especially during the first couple of years, to get the credit line that we really needed to finance production. Finding the right bank was important, because every bank has a different philosophy. We probably went through two or three banks until we found one that understood our business. Some people consider our business risky because it's seasonal. This one bank took a shot on us, and then developed confidence in us because we were hitting our numbers. It's a local community bank.
What kind of information did the bank focus on to become comfortable with Maverik?
Our projections — where we are going to be [in terms of sales] next year. We didn't just put numbers on paper and rely on wishful thinking. We were hitting the numbers, exceeding them every year. We formed a good partnership, in which they came through and ended up financing us the way we needed to be financed to grow. We basically showed the bank that they would hinder our growth if we were underfinanced.
And you got the required financing?
They came through with the financing, and we were able to produce the product and get it on the shelves at the right time.
When you talk about the "right time" are you referring to supply-chain timing?
Yes. Because lacrosse gear is seasonal, if you don't have your merchandise on the shelves by a certain time you lose sales. If you're a month late, the retailers will cancel the order. Timing is everything, and if you don't have the money to pay for the merchandise, the vendors are not going to ship it from, say, China. Now we're at the point where the vendors are starting to give us credit, so it's making it a little bit easier for us. But the most difficult thing about being new was that the overseas factories did not give us the credit we needed. So you're putting down deposits, you're paying for your product up front. As a result, we're trying to hit sales numbers and pay for the products out of our pocket before we even put it on the shelves. And it's a battle.
Has the credit crunch affected your banking relationship, or any other aspects of your company?
The bank that we're working with has been very comfortable with us. Our banking relationship is not one of our bigger problems anymore. The problem that we're worried about is getting paid for our product — whether we have the receivables. The credit crisis affects our financing from the customer side because our receivables are our financing. The way I look at it, you've got to count on getting that money from your customers, or your cash flow is shot.
Have you ever considered selling your receivables to raise capital?
We looked into it. It was just too expensive. Going to the banks for a credit line was much cheaper. And we started accepting credit cards [from customers] for large amounts. We'd rather just get the money in the house and not worry about it. Going the credit card route has helped to make sure our cash flow is steady.
Regarding measuring your growth, what metric do you watch?
I think you always have to look at revenues. You always look at your margins, too. Margins on your products are pretty important, because you don't want to grow your sales by giving product away. So I would say we look at sales and gross profit margins, when we track growth, as well as the different products categories to make sure each category is growing.
What ratios do you track?
The only ratio I really look at is a quick ratio, a current ratio. I always try to keep it above one, always try to make sure that we are in a position where we can pay our bills. Like I said, I'm more receivable-based because I know that's the quick cash, and I want to make sure that we're not over-leveraged.
Has the slow economy made it difficult to maintain good levels of working capital?
It's always a challenge to manage cash flow based on the seasonality of our business. All the money goes out the door and onto the shelves. Then it slowly comes back in and you pay off your credit lines. The timing of that cycle is an everyday challenge, especially with what's going on with the economy. Everyone just throws up red flags, and you're a little bit more cautious.
How has the caution affected your growth strategy?
We look at our dealer network carefully. We don't sell direct [to schools or clubs]. We sell mainly to what we call lacrosse specialty stores. From day one we've been in this for the long term. We can grow a lot faster, but we actually hindered our growth a little bit. We wanted to partner with dealers with a good history and good territories, and that pay their bills. I know everyone says that, but we really tried to look at it on a pretty consistent basis and [examine the dealer network] through a process.
Would you consider branching out, selling products to big-box stores like Sports Authority or Dick's Sporting Goods?
Big-box stores are getting into [lacrosse]. That's changing the industry a bit. Lacrosse is getting to a point where it's becoming national and becoming bigger. Whether we're going to do it , that's to be determined. It is sort of a different monster — it changes your whole outlook on who you are. You've got to figure it out and make sure it's the right move for your brand.
As CFO of a smaller company you are involved in the importing side of the supply chain. What is your role?
I have to make sure that we have the product funding. I also am involved in negotiating terms with the factories, reviewing what we pay in duties, what our freight will cost, what's the most economical way of bring products [into the United States]. How you import products is actually a science. If you know the [importing] categories and how to work with the categories you'll save your company money. Also, you have to assess what countries you want to work with. That changes all the time. For example, if you're importing from Mexico it might be free, whereas imports from China may have an 18% duty.
Has there been a shift away from Chinese manufacturing?
[The changing duty structure] forces businesses to look for new fabrication sources. That's happened in the garment industry. A lot of garment [manufacturing] went to South America, Central America, and Mexico; it used to always be in China.
Does Maverik still uses Chinese factories?
For the most part. I would say [we manufacture] probably 85 percent of our products in China.
Despite being a private company, Maverik reports its financial results in U.S. generally accepted accounting principles. Why?
It's not required by our banks, it's what our accountant suggested that we use. I am not an accountant, and after asking him some questions it, [U.S. GAAP] looked like the best choice, especially if we need it in the future or the banks start asking for it.