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Think Like A CFO

The happy times come while wandering the aisles of the NAB exhibition floor. "If we only had this wonderful product," you think, followed by something like "we could do our jobs better," or "my job would be easier," or...

These are happy times indeed when compared to going back and trying to sell the company's Chief Financial Officer on signing the purchase order.

I'm going to make a suggestion that will cause 90 percent of readers to succumb to the page turning urge: you need to learn to think like a CFO.

Who would want to learn to think like a person who wears the expression of a professional pickle-taster and repeats the word "no" all day long? Who would want to run an endless loop of the thought "there's got to be a cheaper way" though his mind?

The answer is that you might, if it could help you get that purchase order signed. And you may find there's some of that CFO logic that will help you make better purchases.

For a learning tool, I'm going to turn to a revolution taking place in the ENG/SNG van marketplace.

FORD OR MERCEDES?

For years, the Ford E350 van has dominated the live-truck market as the chassis of choice. It is gross weight-rated at 9,400 pounds, has a gasoline engine, and has a modern, rounded-shaped exterior.

The E350 chassis manufacturer's suggested retail price is around $25,000.

There's a new kid on the block, the Freightliner Sprinter. It is gross weight-rated at 9,995 pounds, has a diesel engine, and a squarer, boxier exterior. Freightliner is owned by Daimler/

Chrysler, and if you bought one in Europe, it would sport a Mercedes hood ornament.

You want the Sprinter because the greater gross weight rating will let you carry more equipment. But the Sprinter chassis MSRP is around $35,000.

Looks like a no-brainer. No bean-counter is going to let you buy a Mercedes ENG van that costs $10,000 more.

But let's look a little closer. The price per gallon of diesel is about the same as a gallon of gas. The gasoline E350 gets around 15 mpg and the diesel Sprinter gets around 22 mpg.

You tell that to the CFO, and the next question out of his mouth is how much mileage are you going to put on the vehicle every year? You tell him between 35-50,000 miles. If you listen closely you'll hear the gears in his head turning: at the bottom of that range, at a buck-seventy a gallon the Sprinter will save over $1,250 a year.

Then there's the maintenance cycle. The diesel engine needs service every 10,000 miles, versus a much shorter interval for the gas engine. You hear more whirring coming from his cranium.

Ah, but isn't the E350 available with a diesel engine? In fact it is, with a chassis MSRP of about $30,000. Are you back to buying the Ford again? Not necessarily.

The last E350 the station bought had to have the roof modified so people could walk and stand up inside it. The Sprinter comes with 72 inches of standing space inside-that and the boxy shape of the Sprinter mean fewer expensive modifications before it hits the road. Is that the beginning of a smile on the CFO's face?

Time to play the trump card, the expected life of the vehicle. As van builder Television Equipment Corporation's Sales Manager Jack Vines Jr. explained to me, "I would expect the vehicle (the Sprinter) to last longer, to get closer to the lifespan of the broadcast equipment, which always outlasts the truck itself."

That one's likely to make you both happy, because the CFO knows he isn't going to have to buy another one any time soon, and you know you won't have to be in there soon asking him for one either.

Would your CFO go along with this, buying a much more expensive Mercedes vehicle? Fed Ex's CFO did; just take a look the next time Fed Ex makes a delivery.

MYSTERIOUS FORMULAS

There's a whole lot of what goes on in a CFO's brain that we non-financial types are never going to understand, i.e. depreciation's effect on taxes, or the future value of money. (Just because I parrot those words doesn't mean I understand them either.)

But I've told this story in these pages before, about a CFO for a company where I worked, who, in desperate frustration, gave us a simple formula.

If we could show him we could save, though lower expenses over four years, the cost of a piece of equipment or system, and continue using that equipment for a fifth year, he'd sign off on it. According to him, when he finished with all the stuff the rest of us didn't understand, we'd both be heroes to the owners of the company.

Putting the sharpest pencil I could to paper, I could never make a case for robotic cameras back then. Now, with the cost of robotic equipment having come down and salaries having gone up, they're using unmanned cameras in that studio.

Taxes, interest rates and a whole lot more have changed since my CFO gave us that formula, so its details may no longer be accurate. But I'd be surprised if you couldn't get a modern version of it for use today. (Just don't show him the pickle-taster description near the top of the column.)

There's a whole other approach you can take with the CFO, which moves away from the expense side of the ledger over to the revenue side: buy us a new XYZ and we'll bring in more money. It's not the wrong argument to make, but it's also not as predictable.

And predictability is a real key, because there's one more thing I can tell you about the CFOs I've met: they never forget. You might fool them (or make an honest mistake) once, but there'll be heck to pay the next time.