98th Edition – December 20, 2020
I always say the number one job of a CFO is to make sure you have enough cash to run your business. If you don’t have enough cash, you failed in your job as a CFO.“Richard Fearon, CFO of Eaton Corp – Source: WSJ
1. Deductibility of the Expenses Paid by PPP Funds
I’m grateful that there is bi-partisan support for overturning a recent Treasury Department ruling stating that expenses covered by forgiven PPP funds will not be deductible.
What a crazy decision with unintended consequences for small businesses who needed 100% of those funds to offset a financial disaster caused by a pandemic which in many cases was not enough.
If all of those funds have been spent on wages, rent, and utilities, where will the money come from to pay the incremental tax burden for the non-deductibility decision? For small businesses who are struggling to make payroll each period, this is a sucker-punch in an already lopsided match against a new economy of uncertainty.
If the Treasury ruling stands, I have a compromise. Allow all taxpayers with taxable NOI under $250,000 to pay the incremental tax burden free of interest and penalties over 36 months.
If you serve in a financial leadership position, keep an eye on this story as it unfolds.
2. Tax Management 101
Speaking of taxes, our next podcast is with one of my favorite income tax experts. Here were the tax management tips I shared with him during the interview:
- have 3 tax planning meetings annually starting in Q2 – the last should be about 20 days before the year ends
- seek input on all major financial decisions – these always impact taxes directly or indirectly
- project the tax liability for the year each month starting in the 4th or 5th month
- provide a complete set of tax workpapers by the 3rd week of January – taxes should be done by the last week of January
Can you write? Someone should write a short book on this topic using the bullet points above as a starting point.
3. Imagine Working on More than 70 Acquisitions Over a Career
At the midway point of the year, M&A activity was off 40% year-over-year. Today, deals by count are only off 8 percent.
Since acquisitions and divestitures are my favorite type of finance projects, I’m a bit of a news junky on M&A stories. That’s why I was somewhat awestruck when I read that Eaton’s CFO had worked on 71 acquisitions and 50 divestitures over his career which will soon be coming to an end.
My favorite quotes in his interview with the WSJ –
- “For every acquisition that you complete, you probably start on four or five. And so we’ve really worked on 250 to 300 acquisitions over this time period and completed 71.”
- “An effective CFO needs to have a strategic mindset to help drive the business.”
- “In a lot of companies, CFOs are effectively a combination of a CFO and a CEO. They straddle those two responsibilities. I don’t see many companies that are comfortable with a CFO that’s more of an auditor or an accountant.”
4. Book Ideas
Many of you probably have strategy + business bookmarked to stay updated on numerous leadership, tech, and strategy topics. Along with The Financial Times, S+B has some of the best coverage on business books, new and old.
A few weeks ago, they released their top picks for 2020 across 7 categories –
- Talent and Leadership
- Tech & Innovation
If you like their picks, go back to their book’s page for past favorites in recent years.
5. A Simple Economics Lesson
A new term I learned this week – Political Entrepreneurs vs. Market Entrepreneurs
The Context – the U.S government used to subsidize steamship owners to carry mail and shuttle passengers from point to point. Market entrepreneurs took no government money.
The Big Idea – subsidized firms eventually went out of business or were forced into bankruptcy because they never innovated. Market entrepreneurs such as Vanderbilt slashed prices because they continually kept innovating and reinvesting profits which drove down operating costs.
Lesson Learned – in business, David can defeat Goliath.
Thank You For Reading. Thank you for making this a successful newsletter.
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Always be learning and growing.