Chapter 8
Resources and Concerns

The story you tell others is what you quickly become.

Introduction

In this chapter, some of the common concerns about the role and responsibilities of the contract Controller will be addressed. Since there is no singular resource about this unique role regarding what to do and what to avoid, I researched and interviewed other contract Controllers. Much of this information in this chapter is the author’s opinion backed by the experiences of those who also serve as Hired Guns.

Not every situation or issue that you face is covered in this book. The purpose of this chapter is to give you sufficient information so that you are both successful and able to share your wisdom with those who follow you. Much of this chapter will be in the form of questions.

The final proof if you are doing things right as the contract financial professional will be

1. You can sleep well at night without worrying about something you said or did.

2. You get referrals and repeat business.

After completing this chapter you should be able to

• Obtain answers to your concerns about the contract Controller role.

• Determine if you have issues about independence that need to be addressed.

• Help the employees you supervise become more productive and effective.

• Develop a model for setting your fees.

• Face up to the issue of ethics as a Hired Gun.

• Know where to turn if you have questions or concerns.

What Other Things Do I Need to Know?

Do I Have Independence Issues to be Concerned About?

The answer will depend upon several factors. The factors are whether

• You are doing the project through a CPA firm.

• You perform other accounting services as part of your Hired Gun practice.

• You use the CPA designation in your materials and communications.

• The client has sufficient accounting talent on board to prepare the financial statements.

In order to understand the issues, let us have a quick review of the basic rules that impact you.

THE BASIC RULES REGARDING HIRED GUN INDEPENDENCE

1. CPAs must assess their independence if a financial statement is involved.

2. CPAs cannot attest to their own assertions.

3. An attestation requires independence.

4. CPAs cannot abdicate or ignore their commitment to professional standards.

Holding Out as a CPA

“Holding yourself out” as a CPA means that you are employed by a certified public accounting firm or you provide services that a CPA firm traditionally provides. Some states regulations imply that if you have CPA after your name then you are holding yourself out. For AICPA purposes, using CPA on your business card does not mean that you will be automatically deemed a CPA firm.

Assertions

Assertions are the opinions (or lack thereof) that CPA firms attach to the client’s financial statements and projections. These include the audit opinion, review report, compilation report, OCBA report, and “I am not independent” statement.

THE THREE TESTS

Whether you are independent or not depends on three tests.

Test #1 is to answer this question: “Do I use my CPA designation?”

As a Hired Gun you may retain your CPA license and take continuing education to retain your designation but this does not mean that you are holding yourself out as a CPA. The test is whether or not you have CPA on your business card, in your resume, on your website, and on your promotional material. If the answer is yes to this question, you must answer Test #2.

Test #2 is to answer this question: “Do I hold myself out as a CPA?” Do people understand that you are a CPA?

If you include it on your business cards and brochures then you are holding yourself out as a CPA. If you answered yes to this question, you must answer Test #3.

Test #3 is to answer this question: “Do I hold myself out as a CPA firm?”

This question determines whether you are acting like a CPA firm. If you provide any services that are provided traditionally by a CPA firm then you are one. This includes but is not limited to tax preparation and compliance, tax research, auditing, reviews, compilations, and accounting write-up work. Since most Hired Guns perform many related services—like tax filings—you are deemed to be a CPA firm. If you answered yes to this test then the rules regarding issuing a financial statement by a CPA firm apply. Any statement you take part in on the client’s behalf, even if it comes off their accounting system is subject to some kind of attestation report.

Figure 8-1 graphically shows the three tests as steps.

Figure 8-1: Three-Tiered Test on Independence

I only do a limited number of tax returns for friends and family and do not charge anything. All of my income comes from being a contract Controller. Am I holding myself out as a CPA firm?

The Internal Revenue Service considers you as a tax practitioner which means that others would as well. Since tax preparation is a service provided by a CPA firm you are probably holding yourself out as one.

I am a CPA but I do not use that designation in any written material other than my resume. My clients never see my resume. Am I holding myself out as a CPA?

Some folks will tell you that you are and others will not. The key test is whether your client understands that they are hiring a qualified CPA. Chances are during the interview or engagement process the subject of your CPA came up. Even if you do not use the CPA officially, the client knows that you are one. Consider yourself holding out as a CPA and answer Test #3.

The subject of CPA never came up with my client and I do not use it on any marketing materials. I’m worried about my client’s banker and not my client. Do I have an independence problem?

At face value, you are acting only as a Hired Gun and not as a CPA firm. However, you do not know what your client said to the banker. He may have said to impress the banker, “I just hired a guy who’s a CPA to serve as my CFO.” The banker does not know of your employment relationship and may automatically assume that you represent a certified public accounting firm. Therefore you may be considered as holding yourself out as a CPA.

The services I provide have nothing to do with accounting and I do not tell people that I am a CPA even though I retain my license. Am I holding myself out?

As long as you are not using CPA in your marketing material or on your business card, then you do not have an independence issue and are not holding yourself out as a CPA—you meet Test #1.

I work with companies in financial distress and act as their CFO as they go through liquidation or put themselves up for sale. Everyone knows I am a CPA, which opens doors for me. I do not prepare any financial statements or get involved with that process. Am I holding myself out as a CPA firm?

You meet Test #2 but not Test #3. Helping companies in financial distress is not a traditional service offered by CPA firms. The fact that you are not involved with preparing financial statements also helps to alleviate the independence issue. Another factor is the client has accounting staff qualified to prepare financial statements and projections. If they do, you fail Test #3.

Can I Issue Financial Statements as Their Controller or CFO? Do I Need to Attach an Attestation Report? Do I Need to Notify Lenders?

The issue of independence comes into play when financial statements are being issued external to the organization. In general, the rules are that if you are associated with a financial statement or financial projections you are required to add an attestation report to it.

After going through the Tests #1 and #2 and determining that you are holding yourself out as a CPA, then you need to address the issue of independence. Of course if you are holding yourself out as a CPA firm, you must attach some kind of report with the financial statements.

I have held a discussion about this topic with numerous experts and often receive conflicting advice. If you are serious about being a Hired Gun for the long term I suggest that you have in your library these documents: AICPA Professional Standards Statements on Standards for Accounting and Review Services as codified in the current Accounting and Review Sections; Rule 101 of the AICPA’s Code of Professional Conduct; and Interpretation 101-3 “Performance of Nonattest Services.”

My only role is their CFO, in a contractor relationship. When I issue a financial statement for my client do I need to put any sort of report with it?

This is a complex question for two reasons. At face value you do not need to attach any attestation report to the client’s financial statement, should it go to a third party. However, there are other things to consider. Does the third party understand your role? Does the fact that you have CPA after your name lead them to think that you represent a CPA firm? Do you only take the data and prepare a financial statement without doing any analytical review?

Even though you are not required to do so I would suggest that you attach to the financial statement a letter detailing your responsibility in preparing it. You could, of course, add a compilation report to the financials stating that you are not independent, but by doing so you are putting yourself in the position of holding yourself out as a CPA firm. The letter that you attach to the financial statement explains that in your role as the CFO, you are preparing this statement for use by third parties. Even though you are a CPA acting in a contractor role, you do not make any sort of attestation to the contents or quality of the statement.

In general, think about how the other party may view you and your responsibility when issuing the financial report.

I am a contract Controller and my client company issues statements to a bank and several outside investors. I take their data, put it in the general ledger, and do a few tests. Then I issue the financial statement on plain paper. Do I have to do anything else beyond that since I will not be associated with the report?

This is the area where due care comes into play. Recently in Washington State a contract Controller found herself named as a defendant in a lawsuit for a company that failed. The CPA credential that is placed after her name leads to an assumption that she had certain knowledge about the business. She is being sued because the plaintiffs say she should have known enough to do some further checking. They are holding her to a very high standard, one that would normally be used against a certified public accounting firm. She did not include any sort of disclaimer with the financial statement.

This sad example illustrates why it is important that you not only use due care but also look at the situation through the eyes of the person receiving your client’s financial statements. The fact that you are (or once were) a CPA carries a burden. When in doubt, always go for the highest standards available to you.

I prepare internal financial statements for my client. Then I turn them over to the client’s CPA firm who gives it their blessing. Do I have any concerns about independence?

The concern here is whether the CPA firm issues an attestation report with the financial statement. If they do, you are functioning as the client’s bookkeeper (no slight intended). If all they do is recommend adjustments to you, which you book, then you issue the financial statement on plain paper, your dilemma is that the CPA firm is now associated with the statement. You need to alter the arrangements with the CPA firm and require that they issue a report with the financial statements.

As you can tell from the questions posed in this and the previous section, you do need a good sounding board to raise these concerns. Many state societies as well as the IMA allow you to anonymously pose ethics questions and they offer their advice or recommendations. This may be a resource should you lack a group of colleagues who you can turn to.

In Essence

Regarding the issues of financial statements and independence, do what helps you to sleep well at night. When in doubt, ask for help!

Other Issues to Consider

Should I Specialize?

In the Hired Gun field, it is better to be a big fish in a small pond than a small fish in the ocean. Specialists are the big fish while generalists are the small fish.

From my experience, the Hired Guns who make the highest amount of revenue per hour are those that specialize. Specialization allows you to get your name out more as the expert in that particular area. As we know, in business, experts command higher fees while generalists do not.

If you are unsure as to whether you have a marketable specialty, look back into your history and study all the types of firms you worked for and sorts of work experiences you acquired. Even better, talk to the people you worked for and ask them, “What do you think I am best at?” Their answers may surprise you and point you toward your area of specialization. We often fail to see ourselves as specialists, yet looking back at your history will show you that you have acquired a tremendous amount of expertise in one or more areas.

If you are considering this, pay close attention to this specialized marketing skill in the previous chapter.

Should I Sign Checks?

If you are a regular employee in a part-time capacity signing checks is a natural responsibility. But if you are a contractor, do not be a signer on any of the bank accounts. You risk unwarranted liability if the client is doing anything shady. Your duties can include approving vendor invoices for payment, but that is where your responsibility stops. Require that an executive or officer of the organization sign all checks. The same rule applies to authorizing advances on debt accounts. Require an employee to do this.

Can I Sign the Payroll Tax Returns?

Just like in signing checks, you incur a potential liability by signing these documents when you are in a contractor capacity. Part of your responsibility can be to prepare or review the various payroll and business tax returns. Have an authorized officer or executive of the organization sign the returns.

If there is a section on the return that reads: “Person to contact for questions,” always enter a client’s employee’s name in that section, not your own.

How Should I Determine How Much to Charge for My Services?

How much you charge will depend on several factors:

• Your expertise or specialty.

• The locale that you are in.

• The amount of competition you have.

• Whether other organizations are offering the service(s) that you provide.

• How you market or position yourself.

• How others market you.

• How your clients view you.

We accountants tend to minimize our self-worth and are willing to accept lower fees in exchange for staying busy. In the Seattle area a Hired Gun working on their own can be hired for as low as $25 and up to $200 an hour. In addition, a contractor who is placed through a recruiting firm such as Robert Half has a rate between $65 and $125 per hour. In smaller markets like cities in the Midwest, the hourly fees range from $25 to $100. In New York City the rates run from $75 and can go as high as $500 per hour.

CPA firms that sell their contract Controller services charge anywhere from $45 an hour to $200 or more.

One of the reasons for the fee differences is the client’s expectation. Clients know that their CPA firm will charge them more than someone who is working on their own. Firms like Robert Half have published rates that are competitive.

The following is a suggestion for calculating your rate, which has two components:

• Component #1—Calculate, based upon local research, how much you would earn for that job (for example, CFO, accounting manager, Controller, and so on.) on an annual basis. Divide that salary plus benefits of about 35 percent by 2000. Then multiply that number by a multiplier from 1.25 to 2. That will be your Target Rate.

  Annual salary for a CFO in your market and ideal client	$120,000
  Benefits and taxes add on 35 percent	42,000
  Total compensation	162,000
  Hours available for sale	÷     2,000
  Rate 1	81.00
  Multiplier	×           2
  Target hourly rate (rounded)	$160.00

• Component #2—Check around your city or location to determine the range that the CPA firms are charging clients for the services that you will provide. Compare those rates with your target rate. Unless you have an expertise that the CPA firms cannot provide or you have a great reputation, your standard rate needs to be in line with the CPA firm. Similarly if you have recruiting firms in your city that provide contractors to their clients, determine the range of their fees.

• The Multiplier—The multiplier range is from 1.25 to 2.0. Intuitively you know the reasons for the multiplier. You will not be booked full-time. The time spent in marketing, billing, research, and education are all on your dime. Also, as a contractor you are responsible for your own taxes and, most likely, health benefits. The multiplier you use will be the one that you are comfortable with, based upon your self-worth and how valuable you are to clients.

Every Hired Gun has their personal philosophy on setting rates. They fall into three categories.

The first category are those who are unsure about their abilities and charge bookkeeping-level fees because they do not believe that they can get paid more. These are on the lower end of the scale.

The second category is those who are very sure about themselves and their skills. They make no apology for their fees and they always find clients who are willing to pay the fee requested. Their fees tend to be on the upper end of the scale.

The third category, the majority, is those that have a target rate somewhere in the middle and develop good negotiating skills so they charge close to that fee.

SOME TIPS ON HOW TO GET HIGHER FEES

Some tips on how to get higher fees include:

1. In your contract name specific points in time where you and the client will review the fee structure. Never go into an open-ended contract without this review because you may find that the work is much harder than you anticipated and you could be stuck with a low fee.

2. Get a retainer up front so that you work on the client’s money.

3. Bill and get paid for your work in advance.

4. If the job entails a variety of duties, some at a basic level and some at a high level, calculate a blended rate that includes both.

5. Offer a fixed fee with a not-to-exceed number of hours. The reason clients often resist higher fees is because they fear the Taxicab Syndrome. If you help to alleviate their fear by capping what you will be charging them each month, the client will be more willing to pay your target rate.

6. Every one of us has in our mind how much a particular service is worth. So when you quote a rate that is higher than what your client feels that service is worth, then you must spend more time helping the client see the value that you are bringing to them.

7. Finally, go in front of a mirror and tell yourself your hourly rate. If you cannot do this without laughing, you do not feel that you are worth that amount of money. Change your attitude or change your rate.

FEEDBACK FACTOR IN FEES

The client is lying when they say they cannot afford you!

If they have a real need for the service, they have the money. They just choose not to pay it to you because your value proposition has not proven to them that you are worth your fee. This is the ugly reality that many consultants ignore and chalk it up to clients without money. This turndown is feedback that you have not proven the value that you can bring to the prospective client.

Could I Take Stock in Lieu of Pay or Compensation to Help a Client Who Lacks Sufficient Cash?

This is not a good idea, because it not only affects your independence but it also puts you at risk for not getting paid for your hard work. It is better, in my estimation, to give back to the client through lower fees than to take an equity stake.

I have met a few contract CFO and Controllers who have done this. A CFO who I know does this because it is his specialty. He is connected to the venture capital market and his clients hire him because he can bring in venture money and help them develop a marketable business plan. He takes big risks. He now has an equity stake in some major Seattle companies and is very wealthy. Some other contractors have done this because they hoped to eventually become a part owner of the organization. In each case the person had other sources of income to fall back on.

Do I Need Risk, Errors and Omission, or Other Insurance Coverage?

Since 1993 I have met only one contract Controller who felt he needed special insurance to protect himself. He would not disclose any details, but it sounded like he put himself in a high-risk situation. His personal insurance advisor suggested that he have the coverage. Except for errors and omission coverage, it is unlikely that you will find a policy that would cover someone who is an independent contractor. Unless you are offering advice to a client that has life or death implications—similar to a structural engineer—most Hired Guns say that you do not need to worry about errors and omissions insurance, while others disagree and purchase E&O insurance.

Is There Any Insurance Protection That I Should Have?

There are four types of coverage to consider having in order to feel good about protecting your personal assets.

The first one is a general liability policy in the range of $1 or $2 million. In today’s society people sue anyone with deep pockets for any reason. This protection has nothing to do with being a contract Controller and everything to do with living in a litigious society.

The second coverage to consider is to add on your auto insurance policy coverage for business travel and liability. Insurance agents tell me that if you are in a car accident and the other party discovers that you are traveling while conducting business, lawyers tend to sue you to get as much money from you as possible. It is common for business managers or executives involved in auto accidents to be sued for three to five times the amount of coverage in their auto policy.

The third coverage has to do with your homeowner’s policy. Most likely you will have an office in your home. If you ever have a client or potential client over, you run the risk that they could be injured while in your home. You also may have some client documents on hand that could be damaged in a fire or disappear in a theft. You may have employees or subcontractors come into your home. For these three reasons, I suggest you talk with your personal agent and let them know what you are doing. They may recommend some additional coverage.

The fourth coverage has to do with disability arising from accidents that may occur at your client’s workplace. As a contractor, you are not covered under your state’s workers’ comp program. If you are injured at your client’s place of business, the client will claim that you are not eligible under their program since you are not their employee. Therefore, talk with your insurance agent to see if there may be some inexpensive coverage that will protect you if you are injured on the client’s premises. In some states, like Washington, self-employed people can voluntarily opt into the state’s workers’ comp program. Check out the labor and industries program in your state to see if this is a possibility for you.

What About Understanding and Using Technology??

You do not need to be an expert in technology, but you do have to keep up with some of the latest trends. If you consult with smaller businesses, they are years behind in the technology tools. One of the ways that you can add value to them is to offer suggestions on new tools that help their employees to be more productive and provide accounting data faster.

If the only computer technology that you use is always your client’s, you run a slight risk of not qualifying as an independent contractor under the IRS rules. The independent contractor needs to have their own work tools.

The technology that you do need to become an expert at is on the tools that help you work anywhere. It is not unusual for a contract Controller who has multiple clients to spend hours each week in their car and at the local espresso stand.

Can I Take the Home Office Deduction?

This is an issue that you need to take up with your tax advisor. (If you do your own taxes, have a conversation with yourself in the mirror.) About half of the Hired Guns I meet do take the home office deduction. The real issue that the IRS would raise in an audit is the fact that you do most of your work at the client’s location. This would make it very difficult for you to justify an office in the home deduction.

Do I Need My Own Contract?

Those accountants who have been contracting for a while usually end up having their own contracts. Some have written their own and others have consulted with an attorney to develop one. Some use an engagement letter similar to ones used by a CPA firm.

If you work for an organization that uses contracted employees regularly, like Microsoft, they will give you their own contract to sign. This happened to me in my first stint as a contract CFO. My client handed me a 35 page document and asked me to sign it. My jaw dropped to the floor— I was not expecting that! After that experience, I developed a proposal format that includes a scope of work attachment. Then the proposal and scope of work become my contract that I have the client sign.

Remember two key issues regarding contracts:

1. Having your own contract shows that you are serious and handle things professionally.

2. Contracts are only useful when things go wrong. That is the point in time when you need to worry as to whether you have adequately covered yourself and your rights.

How Does the Issue of Ethics Impact Me or My Role?

There is no uniform Code of Conduct that consultants must follow. If you have a designation such as a CMC (Certified Management Consultant) or are a member of an organization such as the IMA, AICPA, or your state society, you must abide by their ethics. Codes of Conduct are basically reminders to act professionally.

If you are not subject to any codes of conduct like those mentioned above, then follow these guidelines and you will not have any concerns about your conduct regarding ethics:

• Never commit to doing something that you do not have the ability to do.

• Never lie to a client or make up credentials you do not have.

• If you feel uncomfortable about the situation, then pursue the reason for your discomfort—your body never lies.

• Deliver what you promise and do not promise what you cannot deliver.

• Be willing to walk away when the client shows you that they do not live up to high ethical standards.

• Always use due care.

• Always stay objective.

• Avoid the merest hint of a conflict of interest.

• If you work with others, employees or associates, determine if they live up to high standards.

• When in doubt, talk the issue over with trusted colleagues.

• Never let your ego interfere with good business judgment.

What Are My Risks?

Everything in life contains risk. Risk has both an upside and a downside.

Here are some risks to consider as you make your choice on whether or not to be a contract professional. As a Hired Gun you risk

• Liking what you do.

• Not liking what you do.

• Taking on more work than you can handle.

• Not earning enough income.

• Creating a positive reputation.

• Building up a viable business.

• Disappointing a client because of other commitments.

• Not getting paid for the work you do.

• Feeling alone or working in isolation.

• Having to invest in your own professional development.

• Taking on a project that requires more work than you expected.

• Having a long list of satisfied clients.

As you can see from this list none of these risks are insurmountable. Ultimately you must review your life’s goals and decide what you want to do to earn money and to contribute back to the society.

Do I Need to Worry about Independent Contractor Status?

RULES FOR INDEPENDENT CONTRACTOR

The IRS has 20 different factors they look at to determine whether a person is truly an employee or an independent contractor. The formal determination is made using a form SS-8.

The Keys to Ensuring That You Stay an Independent Contractor Are:

• Have a written agreement stating your relationship.

• Have the right to control the means and manner of the service.

• Subject yourself only to expected results. You control your processes.

• Make sure you are not economically dependent on the one entity you work for.

• Supply your own equipment, tools, or supplies.

• Do not let the client set your exact hours. Specify that you can perform services outside of the normal working hours.

• Obtain a state tax identification number.

• Provide for payment by a retainer, by milestones, or upon completion of the project. Avoid hourly billings, if possible.

• Invoice for your services and expenses. Never use the client’s expense form.

• Provide that the relationship can be terminated upon breach of the agreement.

• Do not prepare the same regular reports that employees are required to submit.

• Do not expect payment for training from the client.

• Never fill out the client’s employment application form.

• Provide the client with a form W-4 and request that they issue you a form 1099 Misc. at the end of the year.

By following these suggestions, you will avoid having to prove that you are a contractor instead of an employee. You will also help your client avoid this too.

As a Consultant, Are There Any Problem Areas to Avoid?

PITFALLS OF CONSULTING

The pitfalls of consulting include:

1. Consultants make too many promises and end up providing too few deliverables.

2. Consultants promise unique, customized advice but produce cookie cutter solutions.

3. If a project succeeds, the consultant takes all the credit. If a project fails the blame belongs to the client.

4. Some business leaders, desperate for a quick fix may implement good advice and then abandon the solution when it does not produce dramatic results within a few months.

5. Executives, when faced with a controversial or unpopular decision, will hire consultants. When the consultant’s advice backfires or people are unhappy with the change, executives have a built in escape hatch and a handy scapegoat.

6. A chronic dependence on consultants usually indicates a chronically weak leadership. Approach these clients with caution because this client often leads to pitfall 5.

Is It Wise to Supervise Employees When I am Only a Contractor?

(If you are a part-time Controller, not under contract, this issue does not apply.)

The easy answer is no. However, there will be things that you must consider such as the length of the project and whether or not someone else can fill the role of supervisor. In my first Hired Gun project, I was asked to supervise five people. The person they reported to on paper, the President, did not have time to do any hands-on supervision. So as their CFO (under contract) I agreed to supervise them. Luckily for me these five were self-starters and just needed someone to bounce ideas off of and give support when it was needed.

Some Hired Guns tell me that they will not take an engagement if it includes supervisory duties. Others go with the flow of the assignment.

Assuming that in your role as contract Controller you are asked to supervise employees, tell the client up front that you will do it, but some of the traditional roles of a supervisor will need to be performed or filled by others. An example of this is the screening process of new employees. You do not need to be involved in every interview during the hiring process.

Assuming this is a longer term project of more than just a few weeks, you will quickly be able to size up if there is someone else in the accounting department who could take the role of lead or acting supervisor. A lot of supervisory tasks are time consuming and this is the reason that you need to limit your responsibilities in this area.

PERFORMANCE EVALUATIONS AS A CONTRACTOR SUPERVISOR

An issue regarding supervision that I needed to address in my first role as a contract CFO was to conduct performance evaluations for my five direct reports. They complained that they had never received any sort of evaluation, mainly because the President was not in touch with what they did.

My approach was to make it a group evaluation. I prepared a questionnaire and gave it to each employee that my staff member regularly interacted with. I then compiled their feedback and used that information as my performance evaluation. In effect, I was not the evaluator, their peers were: I was the messenger, the interpreter, and the person they could talk to.

If you need a tool to conduct a performance evaluation, in the Appendix of this workbook is a best practice tool. It is titled the “Learning Curve Performance Evaluation.” I use this tool to help employees quickly master their job and shorten the learning curve of their responsibilities. I include it because, if you work for a smaller organization or dysfunctional company, they probably lack adequate performance evaluation tools.

One of the biggest issues that you may face, especially if you walk into a mess, is raising employee performance. In the section following this, there are some suggestions on how to do this. The key to raising employee performance quickly is to use performance metrics.

ELEVATING EMPLOYEE PERFORMANCE QUICKLY

Companies skilled in performance measuring use specific metrics to drive their productivity increases. They ask themselves: “What behaviors or actions do we need to measure to increase the likelihood that we will achieve our performance and productivity goals?”

The purpose of this best practice is to get you to apply metrics that will enable your employees to be more effective and productive in their day-to-day work. When employees understand exactly what is expected of them in terms of accomplishments and know that they are being constantly measured they become more effective, productive, and stay accountable.

In this best practice are tools that set goals and standards for each employee so that they understand your efforts to help them become peak performers and know that you will reward and recognize them for their efforts and contributions.

Let us begin your understanding of this best practice by going into some key terminology.

Employee Performance Defined

Performance related to the employee can be defined as how well the employee does their job against the expectations placed upon them. Employees who are considered peak performers have a reputation for exceeding these expectations, while the underperformers’ reputation is for not living up to the minimum expectations. As a supervisor, your responsibility is to create peak performers or replace those people who are unable to become star performers.

Employee performance issues are based on the assumption that the employee has the ability to perform at higher levels of quality and productivity, but is choosing not to.

Employee Productivity Defined

Productivity or effectiveness is putting in effort so that the results exceed the effort. It requires that the employee does the right things, instead of being efficient, which is doing things right!

Accountants say they want efficiency. If you fall into that trap, you are barking up the wrong tree. To be efficient, you demand that everyone cross all their T’s and dot all their I’s without regard to whether their work adds value to your customer. Being productive, on the other hand, is paying attention to what the customer expects and moving heaven and earth to meet that expectation.

Employee Performance Lesson: You cannot affect an employee’s performance until you can accurately describe it to them clearly.

EMPLOYEE PERFORMANCE PRINCIPLE 1

• In the absence of honest feedback, employees will make up their own standards for acceptable behaviors and performance. Their standards will never be higher than yours.

Advice from Experienced Hired Guns

Paul Colao Is a Contract CFO

“I introduced myself around to venture capitalists figuring they could use my financial expertise.” Paul worked on an interim basis with venture capitalists helping them in the early stages of financing for promising startups.

Erin Corsair Is a Professional Temporary

“Since all of my projects are strategic, involving short-term problem solving, I am never bored.”

Curt Halin Is a Contract Controller

“I am trying not to compete with the CPAs in public practice. Clients benefit the most when I am able to work with the CPA firm.” Curt says the average length of his assignments is six to nine months and only one in ten clients will remain as a long-term engagement with continuing monthly needs.

Curt finds new clients through referrals, cold calling, advertising in the Yellow Pages, and personal contacts. “I cannot overemphasize the value of networking and persistence. Once you have a lead you should begin to develop a relationship with the decision maker of that organization. It could easily require three or more contacts and as much as a year before the potential contact turns into a client.”

“I will only be able to handle two or three major clients at one time.” Usually a new client has an intense need, so he works at their office two to four days a week for several months. Then the time commitment drops off. Once that client’s needs are met, he can move on to the next client crisis.

Curt’s advice to you:

• Develop a business plan.

• Network extensively within your business community.

• Get to know other consultants.

• Keep your billings up to date.

• Contact attorneys who deal with small business and bankruptcies.

• Clearly and carefully describe the services you agree to perform.

• Develop a long-term perspective.

Bob Anderson Chooses to Niche in Retail

Bob has been a Hired Gun for 15 years and worked in or with the grocery industry long before contracting. His “typical engagement is 3-4 days and longest engagement is working part-time for 3 months.” Bob markets his services by direct marketing with phone and in-person meetings.

The one thing that Bob wishes he had known when first starting out was the need for “diversification in clients.” The grocery industry is consolidating and his typical client—the small retail store—is becoming scarce.

Bob’s advice to you: Do not let it [the job] consume all your time. It is negative to other clients.

Scott Allred Is Located in Montana and Relies Heavily on the Internet to Provide Services

Scott defines his services as “CFO Solutions” or “Controller Solutions” depending on the needs of the firms he has targeted. “I started providing outsourced accounting services in August of 2002. The services were provided using trained staff, internet technologies, and other state of the art software. As clients used our services, I found myself providing additional services in the Controller and CFO job description.” Scott, similar to around 30 percent of Hired Guns, incorporated his business because of the concerns for liability and hiring his own employees.

Scott decided not to niche but does target specific markets. “At this point I provide services to a broad spectrum of clients, from storage facilities, dentists, computer firms, and manufacturing.” His current challenge is: “To provide a consistent product and to do so in a timely fashion. Because of this limitation, it is important to have a solid system in place. This is the system I am working on, but is not a two hour project.”

In marketing he found that direct telephone telemarketing works for him and so does obtaining referrals. Scott is developing a new website designed to sell his services using a “master sales page.” He believes there is success in using this approach.

Scott has had up to eight client projects going on at one time and his typical engagement consists of recurring annual engagements. His longest engagement has been 3.5 years and still going.

The one thing that Scott wishes he knew from day one is: “Marketing, marketing, marketing. I have spent a lot of capital with a lot of things not working.”

Scott has advice for those starting out as Hired Guns

• The skills you will need to rely on most are

  • Communication.

  • Developing a Job Description.

  • Planning.

• Make sure you have the personality and people skills to make it work.

• Understand the personalities of those you are working with. Some may not be worth the anxiety and trouble to work with them, even if it means you have some income.

• Have a good plan for transitioning into an engagement. There is nothing more frustrating for you and the client than to have the process stalled or on a slow track.

• Learn your job and perform your services very well in less than 3 months.

• Offer a guarantee that has some teeth to it.

Gene Siciliano Is CFO for Rent®

Serving clients through his firm CFO for Rent, Gene considers himself to be the godfather of the contract CFO, since he has been doing this work for 21 years. The clients Gene serves are CEOs of privately owned companies in the lower end of the middle market; mostly manufacturing, service, and some distribution. Gene added another revenue source by offering a finance coaching service for senior executives of large companies. Gene never felt the need to incorporate his business even though he has employees, two under contract.

His main challenge is in being “a single shingle coping with the swings in revenue and still saving enough to build net worth for later years.” As he blazed the trail for the rest of us, Gene found that a “good stream of referrals, my CFO for Rent brand, my principal website, my people skills, my consistent follow up on leads, my published book, and to some extent my speaking are the ways new clients find me.” Gene’s firm has two websites and is working on a third.

Regarding engagements, Gene says he serves 5 to 10 clients at a time with the average length of a typical engagement being 6 to 12 months. Asked about his longest engagement, he told me: “A current client is now in their 4th year; their 3rd was their best profit year ever.” Sounds like Gene’s advice pays off.

The three critical skills that Gene relies most on to remain successful are

• “Pretty good marketing sense—the ability to create and implement marketing ideas that raise my visibility; the fact that I genuinely like people adds to the appeal, I think.”

• “Strong communication ability—I project a credible image during sales calls, and make my competence AND communication ability clear to the prospect. I listen well and prospects and other professionals see that. I often have a close after a single meeting.”

• “Financial management skill—the technical core of my trade. I am a strong accountant, a skilled financial expert, and a good judge of talent in the financial area.”

This long-time CFO has these words of wisdom for those starting out. “The larger the average size of your client, the larger the average size of your invoice. Owners and CEOs of small companies agonize over paying for professional services, while professional managers of large companies take it as a cost of doing business. Find a unique niche, become an expert at it, and find a way to brand your approach to that niche. Hire a marketing expert to help you exploit it, because you cannot do it yourself, even if you worked in the marketing department of XYZ before. Do this as soon as possible.”

Audrey Godwin Defines Herself as a Chief Business Integrator

If you want to see a professional contractor’s website that attracts attention, you need to visit Audrey Godwin’s. Audrey’s experiences in both public accounting and then in industry prepared her for the role she plays with her clients when she founded her firm, the Godwin Group. “I have had my own firm for four years and before that was an employee of other firms for 4 years. I have been doing this work for 8 years.”

“I refer to myself as a CPA and business advisor. I also say that as CFO I am the Chief Business Integrator, since I understand the different dynamics in a business and can speak to everyone from the owner to the sales manager to the receptionist in a way that is useful to the sustainability of the business. I serve clients who have annual revenues of under $5 million. They are primarily in the construction and real estate development industry, business service professionals (graphic designers, copywriters, and so on.) and some retail.”

Audrey’s firm is a PLLC. We did this “mainly for cash flow reasons since the company is still in growth mode. This allows me to take draws when needed and not be hooked into a salary and related payroll taxes.” Her firm currently has two employees.

As of now Audrey is managing 3 CFO projects, 10 Controller engagements, and her longest engagement is serving as a CFO in a situation moving into its second year.

Her ongoing challenge is the one that almost all Hired Guns face: “Being a sole practitioner, staying motivated and connected to colleagues. I enjoy ‘group think’ from time to time just to gauge where I am and to see what I can leverage from others. Educating smaller clients that they cannot afford not to have me as part of their management team.” Audrey spends considerable effort to help potential clients see her as more than a tax CPA.

Audrey asked me to pass these pearls of wisdom to those who are interested in this role. “Evaluate your soft skills. Do you listen well? Are you okay with not being the expert, but being a facilitator and coach? Invest in personal development classes to enhance your soft skills.” The one thing she wishes that someone would have told her when she first started is “that it would take a good two to three years to create an educational awareness campaign to help business owners understand the role of the CPA outside of taxes.”

Networking and speaking engagements are Audrey’s paths to new clients. “I belong to associations that are directly related to the industries I serve. I do workshops and seminars related to business development and management so it shows my expertise in this area.”

The three skills she relies on most are

• Active listening.

• Creativity.

• Critical thinking.

Sandra Copas Owns a Firm on the Leading Edge

Sandra is doing something that is nearly impossible in the Hired Gun business: partnering with her husband, Bryan, in a firm that generates sufficient work for both of them and other Hired Guns. (Most married couples find it impossible to work with their spouse and still stay married.)

Sandra and Bryan’s firm only started in August of 2004, but they are evolving the firm to meet their clients’ changing needs. Regarding the firm’s specialties Sandra told me, “Most Hired Guns work offsite. We believe our clients receive a greater benefit from us being at their place of business. We offer business advisory services in addition to controllership or CFO work—HR support, meeting facilitations, assisting in the creation of a vision, business plan—which allows us to give our clients help in areas that may be overlooked. Many business owners believe their only problem is financial. Typically, multiple issues need to be addressed. Our consultants must have significant experience, education, and training. It is most effective when the senior level financial manager who understands, for example, the treasury functions of individual clients, is watchful of fraud, and knows how to run a successful business.”

“To be cost effective, our [ideal] clients must have revenues over $1 million (but $2 million is preferred) up to $20 million, employs less than 15 people, needs less than 25 hours of work for their controller or CFO, per week, and have some knowledge of how to run a business. It is surprising how many businesses fit the first three criteria but not the last.”

“The maximum number of clients that one consultant can handle is 8 to 10 per week, working half-days. Our engagements are ongoing with 6-month contracts. Our longest engagement is almost 2 years and still going.”

Sandra is always concerned about marketing. “Educating potential clients and our lead generators is our biggest obstacle. It is difficult for a layperson to explain (sell) or understand (buy) our value proposition.” Besides having a website, Sandra and her partner spend time being visible to potential clients. “What works best for us are networking, direct mail campaigns, and online advertising.”

The three critical skills that she tells me you need to remain successful are

• Lifetime learning.

• Effective listening and communication skills ranging from the most basic to highly technical or professional.

• Networking.

If she were to look back to when she first started, Sandra said the one thing she wished someone had told her was, “If something feels wrong from the start, do not accept the engagement. Use intuition when accepting new clients. Do not accept every prospect who asks for help.”

Sandra passes on this advice to you. “It is important to know how to run a business, not just the numbers. Communication skills must be excellent. Unlike tax work, clients will not see instant improvement. Constant and regular communication with the client is essential to manage the project and keep the client happy.”

William Looney Left the Corporate Big Company Environment after 20+ Years

Bill was burned out from the never ending cycle of downsizing and working harder but not smarter. He launched his firm in 2004 as an LLC, which gives him the benefit of a 401K plan. Eschewing a fancy title, Bill refers to himself a Consultant or Contractor.

Bill’s niche is the industry he worked in. “My work centers from my experience as a general accountant and controller in a manufacturing setting. Based on that I am able to do accounting related project research, temporary employee coverage (due to personnel transitioning between assignments or taking on personal leave of absence), account analysis and reconciliation cleanup (monthly or year-end). I have also been involved in analyzing operational mill level financials for litigation support. All my work so far has been with forestry and wood products related companies. The average length of an assignment is slightly over one year, though I had one short term assignment that was based on a single project approximately 1 month in duration. My longest assignment lasted 14 months.”

His litigation support is high value, high paying, and hard work but it is not without challenges. He is most concerned about “not giving in to anxiety regarding future assignments; personal marketing to a broader market; managing multiple client obligations.”

Bill is honing in on his approach to marketing and does not have a website or even a business card yet. Not from neglect, but from picking up work the minute he put up his shingle! So far the personal contact is working to bring in meaningful work to him.

Since Bill feels that he is still in the start-up mode, his advice to you is fresh in his mind. “Make sure to cultivate personal contacts and build on core strengths and abilities. I would also recommend a strong financial position to have the confidence that cash reserves provide.” His initial concern was “that I would be fully engaged on a steady basis.” He now realizes “how critical personal contacts are in obtaining assignments.”

“The three critical skills I rely most on to remain successful are

• Analytical ability.

• Controllership or General Accounting experience.

• Skills using Microsoft Office products to produce analytical models, budgeting worksheets, reconciliation tools, and presentations. Also, I have an ability to learn, use, document and train others on a variety of financial software packages (Sage products, People Soft, CT3, and so on).”

Controller’s Resources List

These are the books that I found very useful in helping me to add value as a Controller, especially in the areas of assisting clients to do a better job of reporting.

• Performance Scorecards: Measuring the Right Things in the Real World
  Richard Y. Chang and Mark W. Morgan, Jossey-Bass

• The HR Scorecard
  Brain Becker, Mark Huselid, Dave Ulrich, Harvard Business School

• Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results
  Robert S. Kaplan and David P. Norton, John Wiley and Sons

• The Balanced Scorecard: Translating Strategy into Action
  Robert S. Kaplan and David P. Norton, Harvard Business School

• Built to Last: Successful Habits of Successful Companies
  J.C. Collins and J. L. Porres, Harper Collins

• The 80/20 Principle: the Secret of Achieving More with Less
  Richard Koch, Doubleday Dell Publishing

• High Performance Benchmarking: 20 Steps to Success
  H. James Harrington and James S. Harrington, McGraw Hill

• Keeping Score: Using the Right Metrics to Drive World-Class Performance
  Mark Graham Brown, Quality Resources

• The Profit Zone: How Strategic Business Decisions Will Lead You to Tomorrow’s Profits
  Adrian Sluwotzky and David Morrison, Three Rivers Press

• Profit Patterns
  Adrian Sluwotzky and David Morrison, Times Business Press

• Women Lead the Way
  Linda Tarr-Whelan, Berrett-Koehler Publishers

• See Jane Lead
  Lois P. Frankel, Business Plus

These are the ongoing resources that I found very useful as Controller. They helped me see beyond my job.