I am a lone wolf in my company at the moment. I am not just the CEO, I am also the CFO. CFO stands for Chief Financial Officer and it is a position with an extreme amount of responsibility. As the CEO, I can have a vision for my company, a grand and glorious one, and I can work with my “Senior Staff” to see if it will work and decide how to implement it.
As I sit in the conference room with the senior members of my staff, my CFO, CIO, and several Senior Vice Presidents I explain in detail what my vision is. My CFO speaks up and says that it sounds like an expensive idea. He would have to crunch the numbers but we might have to come up with several thousand dollars beyond what we have coming in as income. Where will we get the money?
Now of course I am the CFO, so I have to play both parts: The CEO and CFO, which often have conflicting rolls. The CEO is dreamy and exciting, the CFO is down to earth and realistic. And how does a corporation get money it doesn’t have?
Well the corporation can do one of the following:
1. Increase income
2. Borrow money from the bank
3. Sell shares of stock
4. Sell bonds
5. Sell assets
Included in these options is the possibility that the CEO will purchase shares of stock from the corporation, if he or she has some extra cash to invest.
Often the CFO doesn’t have the choice to say “No, let’s not do that”. Sometimes the corporation goes from profit to loss, and although adjustments will be made to plug the leak, there will be near term losses to deal with. Sometimes the CFO will have to choose whether to try to make a go of it by juggling receivables, payables, and any other asset or liability, or if he wants to try to raise outside money somehow. There may actually not be a choice here either, as the board of directors may prevent selling new shares of stock or borrowing money.
The CFO may also have to deal with tax consequences of his money management. For instance, I found myself with a pretty big profit this year, so I took action to push my profit into 2011. The problem with trying to do this is that I don’t have a whole lot of cash to work with and could not raise outside money, except from myself, by directive of my board of directors. In other words I could not sell shares of stock to non-family members. I also could not borrow money from the bank. So, I bought shares of my own stock and did my best to increase my accounts payable float. By the way, I had cash flow issues because my accounts receivable is pretty big and my accounts payable is pretty small. No problem getting paid, it just takes a while.
Once I am on the other side of 2011, as we are today, I can take action to pump up my profits and worry about the tax issues at the end of the year. With any luck I will have tax issues, and maybe I’ll just book them in 2011.
If you wonder how I “push profits into 2011”, generally this involves investing in such as way to create an expense in 2010 and new income in 2011. I did this by advertising right at the end of the year. My advertising is an expense against income, but my advertising will produce income, hopefully, after a few months. There are probably many other ways to do this, although many investments are expensed over time, such as equipment or buildings, so you have to use the right investments.