Capital Markets

The Key to Bankers’ Hearts

Dazzling them with your finance knowledge can help keep the capital flowing, recession notwithstanding, according to private-company CFO Ron Box.
David McCannFebruary 17, 2009

“Banks aren’t lending,” we keep hearing, but like most generalizations, it’s not literally true. Even a business that has been flat-out hammered by the recession can get a credit line — if it manages its bank relationships with the proper care.

For Joe Money Machinery, a regional dealer of heavy construction equipment in the Southeast, that means working with more banks than is typical for a company its size, to lessen the chances of the capital spigot shutting off. For CFO Ron Box, it also means serving as an ad-hoc business consultant to his lenders.

Though the company is privately held, Box has been on a mission to learn the intricacies of International Financial Reporting Standards. He has taken 30 hours of training from the American Institute of Certified Public Accountants, partly because he figures his banks are interested in how a switch to IFRS would affect other clients. Offering to share knowledge is one way he keeps himself in their good graces.

That’s just the latest skill-set expansion for Box, a Certified Public Accountant and a former banker himself. He has been Joe Money’s CFO for 12 years and, a few years ago, took on the additional title of chief information officer. He embraced the CIO role, earning certifications in information technology, systems security, and financial forensics.

Box took a break from dealing with the financial crisis to talk with CFO.com about these various challenges and opportunities. An edited version of the interview follows.

How big is the company?

Our revenue was $28 million a couple years ago, but we’re in the construction business, so that obviously has declined.

RonBoxFinal

So it’s a small private company. What’s your interest in IFRS?

Well, the IASB is coming out with a simplified version for private companies. [Editor’s note: The board says to expect a rollout in the second half of this year.] With IFRS, you mark-to-market more assets. We’re a 72-year-old company that has real estate on our books at historical cost, so there could be a big benefit in IFRS based on the substantially higher fair market value for that property. Any private-company CFO should be knowledgeable about it, to determine whether to consider adoption.

But even more importantly, it has been my objective that our key bankers consider me knowledgeable in the issues important to their commercial portfolio. XBRL is another one.

Why is that so important?

Much of dealing with financial institutions is surprisingly personal. Bankers who view me as capable of dealing with issues like that will have more trust in me and less perceived risk in negotiating the loans. They have expressed this to me in the past, so I am confident it is worth the extra effort.

With IFRS I was able to say, ultimately on adoption we expect there would be a positive effect on our equity. It gave them a clearer picture of where we would be. But beyond that, as I’ve talked with bankers about various financial issues, they’ll say, “Oh, tell me more about that — I have a customer it would apply to.” The more I can tell them, the more they’re going to view my skills in a positive light.

So you’ve been able to maintain sufficient access to capital?

Yes, so far. But it’s been tricky. We have our locations in Alabama, Pensacola, and Atlanta, and in the Southeast most banks have some exposure in Florida and Atlanta, which are very toxic areas for mortgage portfolios. Many of them are modifying their lending practices based on how toxic their portfolios are. They might cap a working capital line at 75 percent of the total we were at before, simply because they’ve got to alter their capital ratio.

Isn’t that a big problem?

For years we’ve had a strategy of having multiple banking relationships, which is somewhat unusual for a company of our size. We deal with four or five banks, so we’ve been able to shift them around.

We had earlier entered into a relationship with Superior Bank, one of the larger Alabama-based banks, which hadn’t experienced mortgage problems to the extent that they had restricted loan availability. We were able fill our working capital needs because we had researched the bank and laid the groundwork for a very good relationship. Being proactive in making sure we have constant access to capital is crucial.

I treat each of the banks as if it’s our main banker. I think my main responsibility is to make sure I have frequent and honest conversation with them. That really plants the seeds for having the credit access we have at the moment.

What else are you doing from a finance standpoint to mitigate the effects of the recession?

Cash control is critical. We have 85 employees. We’ve reduced salaries and cut back on weekly hours, but we’re doing everything we can to avoid layoffs.

What expectations do you have for the economy and when your business might turn around?

Hopefully, depending on how much of the stimulus package is geared specifically toward construction, we think mid-2009 could be the beginning of a turning point for us. Our industry should be a primary beneficiary of the effort to build or repair roads, bridges, and schools.

Switching gears, why did you take on the CIO responsibility?

It started out as just an interest. But I found that IT skills are very complementary with finance. I believe that finance depends on IT, especially data security. So much of what is done to generate financial statements, the notes to the financials, depreciation calculations, or anything you want to name, is driven by data coming out of an IT system. If you don’t have good controls there, you can’t really assume you’ve got good financial controls.

Also, making separate departments with very different cultures pull efficiently toward the same goal is much easier if a manager can speak the language and communicate to each area. It is also much harder for someone to pull the wool over your eyes by saying that this or that is not possible just because they don’t want to do it.

In Sarbanes-Oxley there is an expectation that you have good IT controls and security, and it’s very clearly stated that IT must be aligned with business objectives.

Do you consciously run your business and prepare financial statements in accordance with Sarbanes-Oxley?

To the extent I can without wasting money. That is my objective, but I try to be sensible about it within the resources we have.

It seems that wearing both the finance and IT hats would be pretty marketable for you.

Well, I hope so. And that’s also another reason to learn about IFRS. The more I know, the more marketable I am.