2   The Role of the Financial Manager and Other Personnel

Leslie Hartmann

Introduction

This book will provide you with insight into many of the unique and relevant areas of finance in the broadcast and cable industry. However, important as systems, regulations, and the financial processes are, it is the people who pull all of these things together to make an organization successful. This chapter provides an overview of financial organizational structure and a brief description of the various roles and responsibilities of the financial personnel and the skills needed to perform those functions.

Centralized versus Decentralized Companies

To describe a company as centralized usually implies that many of the accounting and finance functions have been consolidated, either regionally or at a single corporate office. In a centralized accounting environment, the strength and the number of financial personnel at the operating units is extremely limited compared to those of the corporate finance team. Of the many benefits associated with a centralized accounting environment, cost efficiency and quality consistency typically are the most compelling. A company’s organizational structure often will contribute to this decision in that if a firm is relatively small, a centralized location may make it easier to control the company’s activities. Even large corporations that are spread over many smaller markets in which the available talent pool often is limited may favor centralization. Functions that are usually centralized are financial reporting and accountspayable.Inaddition,manycompaniesfindefficienciesincuttingchecksfrom a centralized location, thus maintaining tighter controls over cash and minimizing the number of checks cut to vendors. Some corporations with similar clientele across several markets will even centralize the credit function to avoid duplicating work.

In a decentralized accounting environment, individual divisions or local stations are responsible for maintaining many of the daily responsibilities, including much of the financial reporting. In contrast to the situation in a centralized environment, the corporate office typically maintains a small corporate finance staff, relying on the strength and the resources at the level of the lower operating unit. A major benefit of this type of structure is that the company can be more responsive to changing market conditions. Also, checks can be cut more quickly, and important information can be provided almost instantaneously to management. Another benefit of decentralization can be a higher level of accuracy when market financial managers each prepare financial statements or forecasts. Because they typically communicate with the department heads on a daily basis, they should be more knowledgeable about pending invoices that need to be addressed or incoming revenue that needs to be recognized. Most companies do not operate at one extreme or the other, but fall somewhere in between. Obviously, one can find both pros and cons to each structure, so there is no right or wrong approach, just a difference in corporate philosophy.

Size and Complexity

In addition to a company’s structure, the size and complexity of the organization will often dictate the number of personnel employed in the various financial roles. For example, in smaller markets or entities operating in a decentralized environment, one person may perform many duties described in this chapter. For large organizations or clusters of stations or systems, there may be many employees handling the same functions. Some organizations have realized greater efficiencies by actually outsourcing some functions—such as accounts receivable, collections, and payroll—to specialized companies. Public corporations often require larger staffs, both to handle the additional reporting requirements demanded of public companies by the government, and to ensure strong internal controls, as will be discussed later in this chapter.

The Players

At a station or cluster of stations, one will almost always find a Financial Manager. The financial manager generally is hired by the station’s General Manager or Corporate Finance Department, and is given dual reporting lines. The role of the financial manager continually evolves with changing regulations, and varies considerably depending on the type of company, its size, and its structure. Considered “the keeper of the cash,” the financial manager’s primary responsibility is to protect the assets of the company, which often includes the station’s commercial inventory, trade and barter inventory, accounts receivable, personnel, property, equipment, and even the FCC license.

At a broadcast station, cable system, or even in a cluster of stations, the financial manager often has the title of Business Manager or Market Controller. Regardless of the working title, this person’s primary role within the organization is managing the business office and all of its associated business functions. He or she is responsible for organizing the Finance Department and hiring the personnel to handle the responsibilities described below. In this managerial/custodial role, the business manager focuses primarily on current assets and liabilities on the balance sheet.

All financial managers need strong leadership and management skills, good analytical abilities, and a solid understanding of basic accounting and finance procedures. Unlike financial managers working in most other industries, there is no such thing as a “typical day” in the life of a broadcast or cable financial manager! These are dynamic industries, offering daily challenges for all who seek to make a living working in the media.

The financial manager handles the financial reporting of the entity; financial reports usually are prepared on a monthly basis, referred to as the month-end close. He or she must ensure that revenue and expenses are reported accurately and in accordance with Generally Accepted Accounting Principles (GAAP—standard guidelines that ensure that financial and accounting data have been assembled objectively and consistently). Reviewing and reconciling all balance sheet accounts, and preparing variance reports, the financial manager also attempts to explain why actual results may differ from budgeted or forecast income.

Recently, many financial managers have assumed the role of strategic business partner with their general manager. They work closely with all department heads to ensure accuracy in forecasting and recording revenue and expenses, and they advise management on strategies for improving efficiency and profitability. These strategies typically take the form of either (a) cutting costs or (b) developing new revenue streams. Financial managers often are responsible for reviewing economic conditions in their respective markets and developing the annual strategies and the operating budgets. Some financial managers provide return on investment (ROI) calculations for large promotions or capital investments. In addition, some managers work closely with their sales departments, assisting in commercial pricing and inventory control.

For companies that must report financials publicly, the role of the financial manager has become increasingly important. Previously regarded as just a “bean counter” or financial reporter, many financial managers today are responsible for ensuring strong internal controls, among which are the segregation of duties (e.g., the person who opens mail containing checks cannot be the person to make the bank deposit), ensuring proper authority (e.g., only specific positions have the authority to sign contracts), and the safeguarding of company assets. Although the financial manager has always been responsible for internal controls, firms have become more reliant on their professional skills in the face of the strict compliance requirements of the Sarbanes-Oxley Act, Section 404, which will be addressed in a later chapter in this book. These added responsibilities have enhanced the exposure, respect, and prestige of financial managers within public media corporations.

The following positions often report to the financial manager. In smaller organizations, the financial manager may even be responsible for performing many, if not all, of these functions.

The Credit Manager is responsible for establishing and administering the organization’s credit policy, thus protecting the advertising inventory of a broadcast or cable company, market, or division. This person reviews credit history and conducts reference checks on potential advertisers to determine whether the ad buyer should be extended credit. Remember, in most cases, advertisers are not required to pay on an invoice until the entire schedule of commercials has aired. Consequently, the broadcasters or cable operator is giving short-term credit to the media buyer. In addition, a credit manager monitors the payment history of existing advertisers to determine if risk factors have changed, thus requiring a change to their credit terms. The credit manager is often involved in the sales-order approval process, and ensuring that funds are collected in advance for clients not granted credit. Within cable businesses, the credit manager performs similar functions in assessing the creditworthiness of prospective new cable clients and advertisers.

A Collections Manager will establish the organization’s collections procedures and policies. This person protects the accounts receivable of the company, with the goal of limiting the amount written off to bad debt. In some organizations, the Account Executives are directly responsible for the maintenance and collections of their accounts. In these situations, the collections manager will provide assistance to the Sales Department by preparing statements, aging reports, and identifying problem accounts. Typically, the collections manager will tackle the more difficult delinquent accounts by making phone calls, sending past-due letters, and working with outside collection agencies when necessary. In many cases, the credit manager will personally handle the collections function. This individual must possess good communication and interpersonal skills. A successful collections manager must strike the delicate balance between enforcing a collection and still maintaining a viable business relationship with a valuable client.

Accounts receivable employees are responsible for the timely and accurate billing of advertisers, cable operators, and cable subscribers, as well as the overall management of the accounts receivable system. These people post payments to client and customer accounts, assist in resolving account discrepancies, and post billing adjustments and write-offs to ensure the accuracy of the aging report (the report shows the history of client payments and all open invoices) and statements. This function often requires strong communications and customer service skills.

The Purchasing Department is responsible for researching and obtaining bids from vendors, and placing orders for supplies and equipment. Accounts payable personnel are responsible primarily for ensuring that vendors are paid both accurately and within terms (that is, when due and not a moment before). These people protect the company’s cash. The Accounts Payable Department will place and track purchase orders, ensure the accuracy of all of the invoices, get payment approval as required, code the invoices to the proper general ledger accounts, enter the invoices into an accounts payable system, and process the checks for the vendors. In addition, they maintain files of vendor contracts and track company leases. In many cases, they usually are also responsible for maintaining vendor W-9 files and processing the end-of-year 1099 reporting. Accounts payable personnel must have strong clerical and organizational skills. In a typical radio or television station, a single person or department handles both accounts payable and purchasing.

The Payroll Department is responsible for processing time sheets, salary adjustments, and all payroll deductions, including payroll taxes and employee benefits. They maintain payroll files and review or prepare employment tax reports—for example, SUI (state unemployment insurance), FUTA (Federal Unemployment Tax Act), and W-2’s. Sometimes they are responsible for calculating and preparing sales-commission reports and calculating bonuses.

The Human Resource (HR) Manager is responsible for establishing and administering personnel policies. He or she maintains and sometimes negotiates employment contracts and manages all of the personnel files. This person administers the company’s employee benefits program, oversees recruitment and hiring practices, handles employee disputes, and prepares any required EEOC (Equal Employment Opportunity Commission), OSHA (Occupational Safety and Health Administration), and state-mandated new-hire compliance reporting. At a station or cluster level, the payroll and HR managers are usually one and the same, but in a cable operation (which tends to be larger), they often are separate. In either case, they play a significant role in protecting the company’s human resource assets. People working in these positions should have good communication skills and an in-depth knowledge of employment and personnel law.

In some broadcast and cable operations, the Finance Department may also be responsible for maintaining and managing trade inventory, managing the fixed assets, managing the public files, managing the traffic department, overseeing risk management, and even handling the front desk and other office personnel and office responsibilities, such as general office maintenance and ordering supplies. Some people say that finance gets to handle all of the jobs that no one else in the office wants to do. They are usually the first to arrive at work in the morning and the last to leave in the evening.

In addition to the above functions, cable programming companies generally have a Network Affiliate Finance (NAF) Department responsible for managing the billing and collection of license fees from companies such as cable operators and satellite companies, which distribute their program content. The single most important function of the Network Affiliate Finance group is affiliate billing and cash application. An affiliate is a cable system (or cable operating company) that carries a specific program network. That is, a local system (or MSO—multiple system operator) that provides A&E to its subscribers is technically an affiliate of A&E. This is similar to the situation in radio and TV where a radio or TV station can be an affiliate of a broadcast network, such as ABC, CBS, NBC, FOX, and so on. Depending upon the size of the network and the number of networks (sometimes also called “channels”) under its control, the NAF group can be responsible for the billing, cash application, and accounts receivable management for hundreds of millions of dollars on an annual basis. The NAF group is responsible for managing relationships with hundreds of MSOs and representing thousands of cable systems. In situations where the programming company controls multiple channels, the number of relationships and dollar volumes can increase exponentially. Managing this large volume of transactions and the accompanying complexity requires (1) skilled staff, (2) a robust affiliate database (containing up-to-date information about each cable system carrying each channel and all contract terms for each affiliated system), and (3) best practices (that is, a consistent approach to managing the complex data inherent in the business).

Further complicating the job of NAF is that the bills sent to affiliates are based on estimates. The affiliates report actual monthly results with the payment. It should be no surprise that discrepancies are common. For this reason, traditional accounts receivable and credit and collection staffs are not the best candidates to fill these positions in an NAF organization; financial analysts are better suited for managing NAF responsibilities. The ability to understand complex contract terms coupled with advanced knowledge of database software used to manipulate and analyze large volumes of data are necessary skills for addressing and resolving payment issues.

Some finance functions are handled only on a corporate level. Although corporate finance responsibilities are very different from those found on the station or cable system level, they are quite similar to the finance activities in other industries and other corporate offices. These positions are typically focused on the long-term assets (value of property, equipment, and other capital assets expected to be usable for more than one year) and long-term liabilities (liabilities that extend beyond the current year) on the balance sheet. The positions typically found in the corporate offices include the Chief Financial Officer (CFO), Controller, Treasurer, Fixed Asset Manager, Tax Accountants, Financial Analysts, Internal Auditors, Risk Managers, and, in the case of publicly traded companies, SEC Accountants.

The corporate finance team works closely with the stations or divisions in developing policies regarding financial controls, financial reporting, and providing general support. They also are responsible for managing the company’s cash and investments, consolidating financial statements, developing acquisition and financing strategies, developing organizational strategies, and setting and driving strategic goals for the organization.

In Conclusion

As we have seen in this chapter, trained and knowledgeable financial personnel are essential for achieving success. A thorough familiarity with the organizational structure, both corporate and local, is necessary in understanding the roles of the financial personnel, and the skills required of these professionals.