10 minute read
Mind Your Business
John Giordano on Cash Flow, Inventory, and Integrity
This column features business insights from a recent “Mind Your Business with Yitzchok Saftlas” radio show. The weekly “Mind Your Business” show – broadcasting since 2015 – features interviews with Fortune 500 executives, business leaders and marketing gurus. Prominent guests include John Sculley, former CEO of Apple and Pepsi; Dick Schulze, founder and Chairman Emeritus of Best Buy; and Beth Comstock, former Vice Chair of GE; among over 400+ senior-level executives and business celebrities. Yitzchok Saftlas, president of Bottom Line Marketing Group, hosts the weekly “Mind Your Business” show, which airs at 10pm every Sunday night on 710 WOR and throughout America on the iHeartRadio Network.
On a recent 710 WOR “Mind Your Business” broadcast, Yitzchok Saftlas (YS) spoke with guest John Giordano (JG), partner at Citrin Cooperman.
YS: Could you share a little bit about Citrin Cooperman?
JG: One interesting piece of trivia we always share is that the company was actually founded on seed money from a major rock band. Our co-founding partners used to work at a firm and served said client. When they decided to go out on their own, this rock band staked them the money to do so. So that’s a little tidbit that we like to throw out there. But now, we’re a top-20 firm. We have offices along both coasts. On the East Coast, we’re servicing Boston Metro all the way down to DC Metro. We have a handful of offices throughout the LA area, which mostly services our entertainment practice and is growing in all different types of industries.
We offer our clients a full suite of services – not just your core tax and accounting, but a multitude of other service offerings that we have that rival some of the larger firms. We go to market by industry. So, we have a lot of different industry specializations like manufacturing and distribution. We also have real estate, construction, franchising, and a slew of other healthcare advisories. We also entered into a private equity transaction in 2021, which was really exciting for us. We are very excited about our path forward following that transaction.
Can you explain how the virtue of respect has resonated with you and led you to where you are today?
Without integrity and respect, it’s very tough to do business. It’s very easy to see through certain people. And once you see through them, you really don’t have the same respect for them. Are you going to do business with that person? You might on a one-off occasion, but in our industry, we feel that we need to be respected by our clients and to respect our clients as well. When you build up a reputation as somebody that respects others, it opens a whole magnitude of things in how you can grow your business. Especially me, as a young professional (at least I like to think I am), we’re in it for the long haul.
I’ve always rode off this background from my parents to be respectful, whatever it may take. If somebody’s disrespectful to you, you don’t come back at it. It’s not an eye for an eye game. Show respect. That’s how you gain respect overall. I hate to say, but it’s almost like a lost art today in some regards. I think we all can show a little bit more respect for each other, and I think it would go a long way. staff, our clients (and their accounting staff) around it. We develop certain client service offerings around it, things we think cater more to M&D companies and new relationship development. I like the fact of a tangible product. Something that you can go out and see being made. Something that’s brought to market that involves branding, marketing, differentiation, product innovation, things like that.
I remember going on inventory observation my first day. New Year’s Eve, walking through an inventory warehouse, going up on those forklifts, but I enjoyed it because it’s a tangible product. It’s so important because there’s a lot that goes into it. From thought development of a product all the way into marketing and ultimately, getting on the shelf and into the customer’s hands. So that’s obviously the business side of it.
But there’s also accounting aspects to consider. Everything is driven by cost these days. Going to market customers, they could easily shop anywhere. Especially with Amazon and online pricing,
it’s very easy to go in there and cost compare. Whereas, back in the old days, if you wanted to cost compare, you’d have to go to 4-5 different stores. So, pricing really matters today. Product availability, innovation, differentiating your products, all those types of things are prevalent today.
Could you further explain the main services you provide?
Our core services have always been assurance and tax compliance. That’s what a lot of our clients need. That’s really our intro for clients, whether they are lenders, investors that need financial statements published, whether they are audited, reviewed, or just compiled. Then we have tax compliance work, which is for taxing authorities depending on where they do business, federal returns, and all the different state jurisdictions. Our state and local tax departments are always busy.
Now, with the Wayfair ruling, a lot of manufacturers and distributors do business all over with e-commerce. So that’s an area that we’ve seen an increase. It’s through those services that we really build our client relationships and can become trusted advisors, because when you’re doing an audit, you’re doing a review, you’re really diving in and understanding the business. We lead by industry. A lot of the people that we staff on these engagements have that background and understanding of how an M&D company operates. You learn about the company and how they do business. That’s how we really started to build our relationships. Those are the core services that we provide, the assurance work and the tax compliance.
Could you talk about how private equity firms are now investing and partnering with accounting firms?
I know it might seem crazy, but it kind of makes sense when you look at what private equity is looking for. From my understanding, they’ve been looking to enter for a while, it just never quite clicked. But for the accounting industry, it’s attractive – the resiliency of the industry, the recurring work. I think that’s drawn them in. A lot of them have other portfolio companies in the professional services space that might look to bolt onto an accounting service. Even prior to us finalizing our dealings (it was another large firm that announced it), they brought in private equity as well. There are rumors that there are a lot more to follow in some of the larger firms. And for us, as partners and owners of accounting firms, we found that very attractive, because it’s a way to bring in a lot of capital to grow.
In the accounting industry today, there’s a great deal of consolidation. There’s a lot of succession planning going on, in terms of people retiring and what they do with their practices. We wanted the capital to grow. We’re a firm that has always grown through mergers and acquisitions, looking to find firms that fit our culture.
Could you explain the concept of turning receivables into cash?
It’s a concept that’s always been looked at, especially for M&D clients. When you deal in wholesale distribution, to stack that against all my outflows. If those trade terms differ from my customer trade terms, I have to balance all that out, plus my employee salaries and benefits. So, that’s why turning receivables is so important.
During the pandemic, we saw a lot of clients that were fortunate enough to get some government assistance that was significantly needed, whether it be the Payroll Protection Program loan or employee retention credits. But as those government programs start to subside, it becomes more prevalent to turn those receivables. You have to make sure that you’re getting those cash payments in. Hopefully, that incubator of those government programs helps stabilize and keep our clients’ customers solvent enough to make payments and all that. But it’s a
it’s not like retail, where I buy something, and you get paid right away. Whenever I distribute wholesale, it’s typically on a trade receivable. A lot of our clients do credit checks and offer treatment. So, trade credit goes out there, and they’ll sell product to them, and then they’ll have to wait on that receivable. It could be 30-90 days to get paid on that. While turning receivables isn’t a new additive to the accounting industry, it’s been so important over the last couple years because of where we’ve been, a lot of it has been stretched out…customers going through a tough time, having receivables outstanding, having to worry about customers going out of business.
The cons of turning receivables into cash are important, especially when projecting cash flows. I always like to boil it down to inflows and outflows. When you sell a product in wholesale distribution, you’re not getting paid on the spot normally. A typical sale is I sell you a product, you agree to pay me $30-60. I have to wait for that cash flow. I have to manage that. That’s my inflow. Then I need game of inflows and outflows, so turning that cash is important in stabilizing the business.
What are the Do’s and Don’ts of inventory management?
One of the biggest things is asking: Where are those products sourced? If it’s overseas, you have to deal with lag time. It could be 120 days of “on the water” time. During the pandemic, when you had that global supply chain crunch, it was easy to forecast sales and what they thought they were going to sell. But it’s really, “When do I bring that product in?” You don’t want to lose customers. You don’t want to have stockouts. That’s the biggest concern. People were taking on more and more inventory to have on hand, which leads to warehousing costs, handling costs, etc. Plus, everything compounds, so if my AR is turning slower, I have to take on more debt. I have to draw off my working line of capital loan to have that cash flow because I’m not even able to sell that inventory to turn it into a receivable yet. So, there’s a lot to manage in terms of not only inventory, but the cash flow as well. It’s a cycle that, we found, those that managed it were able to succeed. Just being agile and being able to forecast and project. We helped a lot of clients out with cash flow projections. There were so many different variables to go into there, because a lot of things weren’t run like how they’ve historically been running.
What are some examples of cybersecurity threats as it relates to M&D?
M&D clients are a target. Many of them don’t think they are. “What would they want from my data?” But hackers know the importance of those companies and how their supply chain is their lifeline. If you hold that up for a minute, they’re typically going to pay to get that back to prevent any delay in their process.
The other thing that we’re seeing now, which is even crazier, is they’ll find ways into a system and just sit there and wait. They’ll just monitor email activity, to see how people converse. How do you transact business? Who are the key points of contact? How does the CEO speak when he writes an email? They’ll monitor that data and find the perfect opportunity to construct an email that looks the same as a regular email from the CEO saying, “Hey, it’s me, I’m on vacation. I need $50,000 overnight.” That’s the way they’ll attack some of these companies, which is absolutely crazy.
