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For whatever reason, instead of counting the extra pay periods in the specific months he raised the per-pay-period cost to compensate. An odd way to do it, but

For whatever reason, instead of counting the extra pay periods in the specific months he raised the per-pay-period cost to compensate. An odd way to do it, but there we are. There's also a "his side of the story": http://fortune.com/2015/08/13/zirtuals-outsourced-cfo-gives-his-side-of-the-shutdown-story/ http://fortune.com/2015/08/13/zirtuals-outsourced-cfo-gives-...

carbocation 8y ago
I am surprised that (if) he is allowed to disclose this type of detail about a client to the press...
- deleted 8y ago
  [deleted]
jessaustin 8y ago
He's very polite, and really that is admirable after getting thrown under this particular bus, but nothing he said here or there really explains why he would have done this. The CEO needed projections she could use without deep analysis on her part. Instead he gave her some riddles in spreadsheet form. There are probably some SV CEOs who enjoy that sort of thing...
- scarface74 8y ago
  What’s a riddle about that? You would calculate a monthly budget and 10 months out of the year your salary budget would be higher based on 2 pay periods a year and 2 months it would be lower. Most other expenses besides salary would be monthly. You would accrue a monthly liability for salaries even though you wouldn’t pay them out evenly. On the months with 3 pay periods, you would deduct from your “salary account”. I’m probably using the words wrong, but I would understand the concept from two courses of accounting I took over 20 years ago. What business does anyone have being a CEO that doesn’t understand simple accounting?
  - jjeaff 8y ago
    The most basic part of a CFO's job would be to make sure the CEO understands that which he apparently did not do.
    - scarface74 8y ago
      I think a CEO should understand basic accounting. It’s part of Sarbanes Oxley that that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. If the company ever did go public, she would be responsible for making sure reports are accurate. For instance, as a private citizen, I would be responsible for making sure I pay the appropriate amount of taxes even if I had an accountant if I was a self employed consultant. If I get audited, my neck is on the line. Ignorance is the reason that most professional football players go broke shortly after they retire and they depend on “professionals”.
      - jjeaff 8y ago
        Yes. But shame on her for trusting the CFO firm they paid for this information? The whole point of hiring a CFO or paying a contractor to do it is so that you don't have to do everything yourself as the CEO. It would be unreasonable to expect every CEO to know the financial details down to a difference in 2 pay periods a year. But that brings us to the real issue, which is that they were obviously operating way too tight if a difference of 2 pay periods a year was enough to bankrupt them.
        icedchai 8y ago
        Unreasonable? Most of the company's expenses are employees, and a lot of this stuff is common sense. It's hardly advanced math. No way were they bankrupted just because of 2 pay periods. There is more to the story.
  - jessaustin 8y ago
    That seems like a sort of shorthand to simplify long-term thinking, for a firm that has a long term. This firm lasted four more months. This CEO needed to understand how much her workforce compensation decisions would cost. The straightforward way to communicate that would have been to indicate what would be paid on each particular payday. This was... something else. There were probably a number of other problems here. The CEO should have known of this particular problem, even without help from the interim CFO. Still, in this area he didn't really help as much as he could have.
paxys 8y ago
Hardly a justification though. "Yes, I provided projections for only 24 out of 26 pay periods, but each of them had some buffer so you should have been good."
- jpatokal 8y ago
  I read that as each pay period being scaled by 26/24, which means the yearly total cost is the same, but the monthly/weekly cashflow is going to be off every now and then.
  - poulsbohemian 8y ago
    That's how I read it too, which while a bit obtuse, I can see being useful if all you are looking for is some big number that helps you with _yearly_ cost projections (but does nothing for you if your costs increase _right this minute_).
    - tlarkworthy 8y ago
      No it makes sense to smooth the numbers so your monthly costs are not wildly skewed by whether there are two or three pay periods in that particular month. Other costs will be monthly.
      - jaxn 8y ago
        Except that your expenses ARE wildly skewed by a 50% increase in labor some months. Maybe smooth is fine for modeling, but when making decisions of when to spend or not spend, you need to know when you will have money. It could be that delaying the transition to full-time by 1-2 months would have made it all work
  - jessaustin 8y ago
    "Scaling" might have made sense if the average payroll were fairly constant. However, we're talking about a startup that could only adjust to demand by hiring and firing. If they served twice as many customers, they would have to hire twice as many ZAs. Thus the payroll would vary wildly from one pay cycle to the next, leave alone one month to the next. There is no purpose relevant to this firm's situation that could have been served by this particular simplification. A startup with these particular hiring needs might have been better served to chop the year into 26 periods than to bother thinking about months... a part-time CFO is unlikely to suggest that.

carbocation 8y ago

I am surprised that (if) he is allowed to disclose this type of detail about a client to the press...

deleted 8y ago
[deleted]

jessaustin 8y ago

He's very polite, and really that is admirable after getting thrown under this particular bus, but nothing he said here or there really explains why he would have done this. The CEO needed projections she could use without deep analysis on her part. Instead he gave her some riddles in spreadsheet form. There are probably some SV CEOs who enjoy that sort of thing...

scarface74 8y ago
What’s a riddle about that? You would calculate a monthly budget and 10 months out of the year your salary budget would be higher based on 2 pay periods a year and 2 months it would be lower. Most other expenses besides salary would be monthly. You would accrue a monthly liability for salaries even though you wouldn’t pay them out evenly. On the months with 3 pay periods, you would deduct from your “salary account”. I’m probably using the words wrong, but I would understand the concept from two courses of accounting I took over 20 years ago. What business does anyone have being a CEO that doesn’t understand simple accounting?
- jjeaff 8y ago
  The most basic part of a CFO's job would be to make sure the CEO understands that which he apparently did not do.
  - scarface74 8y ago
    I think a CEO should understand basic accounting. It’s part of Sarbanes Oxley that that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. If the company ever did go public, she would be responsible for making sure reports are accurate. For instance, as a private citizen, I would be responsible for making sure I pay the appropriate amount of taxes even if I had an accountant if I was a self employed consultant. If I get audited, my neck is on the line. Ignorance is the reason that most professional football players go broke shortly after they retire and they depend on “professionals”.
    - jjeaff 8y ago
      Yes. But shame on her for trusting the CFO firm they paid for this information? The whole point of hiring a CFO or paying a contractor to do it is so that you don't have to do everything yourself as the CEO. It would be unreasonable to expect every CEO to know the financial details down to a difference in 2 pay periods a year. But that brings us to the real issue, which is that they were obviously operating way too tight if a difference of 2 pay periods a year was enough to bankrupt them.
      - icedchai 8y ago
        Unreasonable? Most of the company's expenses are employees, and a lot of this stuff is common sense. It's hardly advanced math. No way were they bankrupted just because of 2 pay periods. There is more to the story.
- jessaustin 8y ago
  That seems like a sort of shorthand to simplify long-term thinking, for a firm that has a long term. This firm lasted four more months. This CEO needed to understand how much her workforce compensation decisions would cost. The straightforward way to communicate that would have been to indicate what would be paid on each particular payday. This was... something else. There were probably a number of other problems here. The CEO should have known of this particular problem, even without help from the interim CFO. Still, in this area he didn't really help as much as he could have.

paxys 8y ago

Hardly a justification though. "Yes, I provided projections for only 24 out of 26 pay periods, but each of them had some buffer so you should have been good."

jpatokal 8y ago
I read that as each pay period being scaled by 26/24, which means the yearly total cost is the same, but the monthly/weekly cashflow is going to be off every now and then.
- poulsbohemian 8y ago
  That's how I read it too, which while a bit obtuse, I can see being useful if all you are looking for is some big number that helps you with _yearly_ cost projections (but does nothing for you if your costs increase _right this minute_).
  - tlarkworthy 8y ago
    No it makes sense to smooth the numbers so your monthly costs are not wildly skewed by whether there are two or three pay periods in that particular month. Other costs will be monthly.
    - jaxn 8y ago
      Except that your expenses ARE wildly skewed by a 50% increase in labor some months. Maybe smooth is fine for modeling, but when making decisions of when to spend or not spend, you need to know when you will have money. It could be that delaying the transition to full-time by 1-2 months would have made it all work
- jessaustin 8y ago
  "Scaling" might have made sense if the average payroll were fairly constant. However, we're talking about a startup that could only adjust to demand by hiring and firing. If they served twice as many customers, they would have to hire twice as many ZAs. Thus the payroll would vary wildly from one pay cycle to the next, leave alone one month to the next. There is no purpose relevant to this firm's situation that could have been served by this particular simplification. A startup with these particular hiring needs might have been better served to chop the year into 26 periods than to bother thinking about months... a part-time CFO is unlikely to suggest that.