Recession taught CFOs ‘what’s necessary and what’s not’
From a municipal government to an automobile dealership to a symphony orchestra, CFOs say the keys to surviving and sometimes thriving in this post-recession but still nerve-wracking age come down to this: perseverance, innovation, learning to do more with less.
Virginia Business talked with a wide range of nominees for its annual Virginia CFO Awards to pinpoint the concerns of chief financial officers.
The awards, now in their eighth year, honor top CFOs in five categories. This year’s competition attracted 31 nominees who were feted at an awards banquet on June 20 at The Jefferson Hotel in Richmond. The winners in each category, chosen in voting by the 2012 winners, are profiled in the following pages.
But first some insights into the daily headaches and winning strategies employed by Virginia CFOs who face a slowly recovering economy.
A late hit in Roanoke
“We haven’t been blown out of the water,” says Ann Shawver, director of finance for the City of Roanoke.
That’s a good thing. A number of local governments across the country can’t say as much.
Still, that doesn’t mean everything has been rosy in Roanoke, which Shawver says lagged behind other parts of the state in being affected by the recession. The problems didn’t catch up with the city, which has a $260 million annual budget, until this year.
“We didn’t see real estate assessments dropping until fiscal year 13 — it was the first decline in our history, and they’re dropping again in [fiscal year 20]14,” Shawver says.
Fortunately, Shawver says, there has been growth in other taxes, as real estate assessments fell.
On Jan. 1, for example, Roanoke raised its lodging tax from 7 to 8 percent of the room rental. The additional money will go toward providing more funding for its visitors bureau and raising the profile of its tourism industry, with the hope of generating more spending from visitors.
Roanoke City Council also temporarily raised the meals tax from 5 to 7 cents per dollar to help boost the school system, which had been hurt by a drop in state appropriations.
The meals tax increase ended on June 30, 2012, but not before it had generated $9.5 million for the schools. The money was used to buy books, reinstate a full summer school program and pay for a reading camp for 600 students. “Roanoke was able to weather through this,” Shawver says, and now things look brighter.
She says the health-care industry is becoming an economic engine for this area. In recent years, for example, Carilion Clinic and Virginia Tech partnered to create a new medical school and research institute.
By 2015, Shawver says, the city also hopes to have passenger rail restored to the historically railroad-centric community.
In the do-more-with-less category, Roanoke has trimmed its employee rolls about 10 percent between fiscal year 2007 and fiscal year 2013. There were no layoffs; jobs were eliminated through attrition.
“We learned a lot with this recession,” Shawver says. “The first thing: Don’t get too comfortable.”
2008 ‘turned the spigot off’
That’s a lesson shared by Stacy Cummings, vice president and chief financial officer of Priority Automotive Group in Chesapeake.
“From 2002 to 2008, it looked like the good times were never going to end. Then, in August 2008 it looked like somebody turned the spigot off.
“We downsized personnel and rearranged the salary structure. In the end, it turned out to be a good thing. We learned how tight we could run things — what’s necessary and what’s not,” Cummings said.
Although Cummings says that Priority “hit the skids” as did many automobile dealerships, it was in a good cash position and knew opportunities would come if it persevered.
During the economic recovery, Priority has focused on acquiring top-tier dealerships with a future. “We just purchased Hampton Honda, and we’re aggressively looking for other opportunities,” Cummings says. “But for every one deal you put together, we probably look at 15 to 20.”
With 1,100 employees, Priority hopes to generate revenue of a billion dollars this year. “Thankfully, the market has caught fire,” Cummings says.
Changes at Symphonicity
The market has caught fire for an orchestra in Virginia Beach, too, but in a much smaller and different way.
Symphonicity, the symphony orchestra of Virginia Beach, has seen its budget quadruple — to $304,000 – during the past decade. In addition, it moved into a spectacular new home — the Sandler Center for the Performing Arts, built in 2007 — and it’s even hit the beach, with pop concerts for bathers and strollers.
Not bad, for a symphony whose musicians are volunteers. What keeps them coming back is the love of music.
Yet, there is another reality. “Well, yes, the music is wonderful, and you have all these wonderful feelings. But you still have to run it like a business to survive,” says Wendy Young, a longtime pianist, who is Symphonicity’s executive director and CFO.
That has meant a constant stream of fundraisers, prospecting and landing corporate donors, plus joining with other arts groups to lobby the City Council.
With the expertise of a local advertising agency, the group also updated and differentiated its image and name (it was formerly the Virginia Beach Symphony Orchestra).
All of that has enabled Symphonicity to prosper, Young says. Still, she emphasizes that the foundation of the organization is the loyalty and participation of a legion of volunteer musicians. “Even though I look at it as a business, they look at it as a family,” Young says.
Rewarding good drivers
Trying to start a company in a nervous economy can be daunting.
Just ask Joe Herbert, CFO of DriveFactor in Richmond, a startup company with a global clientele in the auto insurance industry.
One of Herbert’s challenges is to maintain sufficient cash and capital to fund the business plan. He must be able to articulate the business plan to potential investors.
Giving drivers a score based on their behavior behind the wheel is at the heart of DriveFactor’s business.
It uses a branch of information technology called telematics to transmit information about drivers to insurance companies, which then assess the risk of a driver having an accident and charges insurance premiums based on that information.
“If you look forward two or three years, we believe that every one of us will have a driver’s score as well as a credit score,” Herbert says.
“[Good] drivers can get a discount on their insurance,” he says, and the information helps insurance companies manage their risk portfolio.
So far, so good. “The economy has not had a negative impact on our company,” Herbert says.
Borrowing picks up
The banking industry has been hard hit by the recession, by the fallout from the bad business practices of some banks and by more stringent federal regulations on banking.
Laurie Grabow, executive vice president and CFO of Old Point National Bank in Hampton, says community banks like hers suffered, too.
“When the economy dipped, people were unable to pay loans, and all banks had larger charge-offs, and that affected income,” she says.
Many homeowners saw their property values drop below what they owed on their mortgages. Rather than cope with “underwater” homes, some people simply walked away from their property.
In response, Grabow says, Old Point, which has branches from Williamsburg to Virginia Beach, began focusing on asset quality and researching why some loans had gone bad. Then, the bank adjusted its processes to include more risk management. “We haven’t come all the way back, but borrowing is picking up,” Grabow says.
As part of Old Point’s recovery efforts, she says, the bank has redoubled relationship-building efforts with customers, offering them opportunities to take advantage of other services offered by the bank.
“For example, if a small business needs an equipment loan, perhaps we’ll ask if we can help with its retail accounts or merchant cards,” Grabow says.
Concierge health care
The Affordable Care Act was the focus of intense scrutiny and debate even before it was signed into law in 2010. Many Virginia businesses are concerned about what the law will mean for them when coverage mandates go into effect next year.
Steve Nardo, CFO at PartnerMD in Richmond — a concierge membership medical practice specializing in primary care and executive health — doesn’t share those fears. “We think we’re going to be one of the companies that do very well with [health reform],” he says.
Nardo cited a forecast estimating that 30 million more patients will be entering the insurance system in 2014, which will further crowd doctors’ waiting rooms.
Many people, he believes, will be willing to pay for doctors whom they can call at any time and who provide prompt service when patients come to the office.
“Our patients are seen within the first five minutes,” he says, and physicians will spend the time to fully understand their problems.
PartnerMD says it maintains a 95-percent retention rate. In Richmond, members pay about $1,900 annually for an individual membership and significantly lower rates for adding on a spouse and children, Nardo says.
The company was founded in 2003. Markel Ventures, a part of Richmond-based specialty insurance company Markel Corp., acquired it in 2011.
PartnerMD has Virginia offices in Richmond, Midlothian, McLean and Lansdowne, with additional offices in South Carolina and Washington state.
In the coming year, it plans to continue a national expansion, with the opening of seven to eight additional offices.
But the company will be careful not to grow too fast. “The culture is so important to us,” Nardo said. “If it takes longer to build coast to coast, so be it.”
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