It's always a big battle. It's the same every year. This year's is coming up, too. It'll break out in September. Maybe in October. It's usually over by January. Then there'll be a truce. Again by autumn.
It's always a big battle. Will the CFO or the CFO win? Are we going to plan for our costs, or are we going to look into the market, see what we're able to sell and tailor the business to that? Is the excel more important or the customer?
It's always a big battle. So I invited the guy who supplies the ammo for these battles to the podcast. In the form of numbers. Predictions. Scenarios. And ultimately, the tools that make all of this possible in virtually real time. Vladislav Hanák of ADEOS tried to answer the following unknowns ...
🔸 What does controlling look like in SME companies?
🔸 Why forecast at a time when nothing is clear?
🔸 How to choose the granularity of the collected data?
🔸 How to plan - according to costs or market opportunities?
🔸 What is needed to manage profitability?
HOW TO EFFECTIVELY MANAGE CONTROLLING IN YOUR COMPANY (INTERVIEW TRANSCRIPT)
Martin Hurych
Hello. I'm Martin Hurych and this is another Ignition. This one will be about finances again. Today we're going to look at how to financially plan, forecast and how to measure profitability. I've invited a special guest, Vlado Hanak. Hello.
Vlado Hanák
Hello, Martin.
What golf course doesn't he like and why?
Martin Hurych
Vlado is the managing director of ADEOS. Before we get into the finances, I found in the preparation that you play golf, so I thought of a peppery question. Which course don't you like, which course maybe has bothered you the most in your golf career?
Vlado Hanák
I've been trying to play golf for about five years now. I wouldn't say I have an unpopular course, rather I have a few favourites that I play over and over again. I haven't yet dared to play on those famous courses and try something proper.
Martin Hurych
Everybody answers that, I'll stick with that question. I don't care about unpopular pitches, I care about what pitches bothered you the most. I absolutely hate Devil's Burden, even though I love it and it's beautiful, but if I told you stories about Devil's Burden, you'd laugh.
Vlado Hanák
I haven't played there, thanks for the tip, I'll try it sometime. I had quite a "good time" when I went to the Terraces two years ago. That was a time when it was more or less empty and the grass was awfully tall. Like I said, I try to play golf so I had a lot of searching and a lot of lost balls, but from experience I always carry at least one extra ball with me on every hole. So the terraces bothered me a lot back then. When I started playing golf those 5 years ago, I played on the left side. I played ice hockey competitively for 15 years in my youth, and I played left-handed like most players, and it seemed perfectly natural to play golf that way. So I got a green card for the left side and played left side for the first year. Then I realized that it probably wasn't quite the right fit, so I turned around and I still struggle the same way, but it's much more meaningful and natural.
Martin Hurych
Are there any lessons for business?
Vlado Hanák
I would say there are several lessons there. The most important one is to get advice from the experts, because when I did the green card, the coach who was giving me the card and the course was telling me that I was playing on the wrong side. I convinced him and eventually we met a few years back and I told him he was right. I should have listened to him, I might be a few handicap points lower than I currently am.
What does ADEOS do?
Martin Hurych
Let's get to what you at ADEOS are experts in. Let's talk about how you got into ADEOS, why you co-founded it, and what ADEOS does, so we know from what position we'll be uncovering other topics.
Vlado Hanák
ADEOS is a specialist in financial management. We deal with everything related to finance and especially with a view to the future. We address topics such as financial planning, business planning, forecasting, cost allocation and profitability, which you mentioned. For groups and holding companies we deliver solutions for the preparation of consolidated financial statements, so anything to do with managing the finances going forward. That's what we do at ADEOS. The solutions we deliver are based on APOLLO. The APOLLO application is basically a standardized solution that is built on the IBM platform and has various modules in it that cover specific parts of the financial plan. This includes the financial plan itself, the business plan, the operating cost plan, the personnel cost plan, allocations, profitability, simulations and so on. The great advantage of APOLLA is that by building it on IBM's flexible framework, we can further customize it to the customer. My entire career, which is now over 18 years, has been in finance. It started very subtly, when I was a database systems programmer, and I gradually moved from those technical roles towards the business. Now in the last couple of years I'm not programming anymore, I have a team of experts and pros at ADEOS who build the solutions, and I'm more comfortable with those customers.
I say. I try to advise them or recommend how to manage their finances differently and better, because the vast majority of companies and our customers are still managing their finances in Excel, which is the road to what I like to call Excel hell.
What does controlling in companies look like?
Martin Hurych
You've already touched on this a little bit, so let's talk about what the company looks like before you joined and after you left. As listeners and viewers think about whether anything we're going to advise here is applicable to them, so that they can imagine what the company would look like after you're gone.
Vlado Hanák
A long time ago, when I started with the business part of my work and the business part, I drew a fairy tale about unfortunate controlling on one slide of my presentation. It was an animated slide where it started innocently, there was a controlling once, he had his Excels around him. But suddenly the management wanted another version of the plan, another version of forecast and finally the controlling was overwhelmed by Excel and #excelhell was flashing. When I present this, whether to a customer or at conferences or seminars, I then watch the reaction of that audience. Every single one of them laughs at it, nods their heads and it's beautiful to see that Excel is still being used even in this modern age where we see digitalisation on every corner. I don't want to denigrate Excel in any way, I like to say that Excel is a good servant, but it can be a hell of a bad master. That said, my goal is to help those companies dig out of that Excel hell and deal with their finances and their plans and forecasts in a sophisticated, modern and automated way. Because then they can reap the benefits that platforms like APOLLO offer.
Why forecast at a time when nothing is clear?
Martin Hurych
I see around me that more and more people are somehow dissecting the finances backwards in order to even understand what happened in that company. I hear, I see, and even the guests that have appeared here on the Zagazho from time to time are talking about it more and more loudly, that it's good to look forward as well. Why, from the position of a pro who co-founded a company to do this, should I be planning ahead and forecasting at a time when nothing has ever been clear for the last 3,4 years? A lot of people I talk to say I can't plan for anything because neither the war nor Covid could be predicted. How do you think that is?
Vlado Hanák
The area that we focus on at ADEOS is called financial management, and when a person is managing, it means that they are going somewhere. By analysing what has happened you are not managing anything, you are managing forward. That is why it is important to look not only at what has happened because what has happened in the past can teach you lessons and navigate you forward. That management of finances and making plans and modeling the future is so that you're managing that potential future. With everything being uncertain these days, the following systems can help you in many ways. A nice example would be to create several versions of that future, several versions of that plan and several versions of that forecast, which you call pessimistic, optimistic and realistic. You simulate several versions of that plan or forecast, and even a short period of time, such as one month, is enough for you to compare and evaluate the execution of that plan and see which version is the most likely. Then you can use that version of the plan for the following months. If you see that energy prices are going up, you can simulate what happens when that price gets to some specific value. You make a few of these variations, evaluate after a short period of time which of these variations is the one that was closest to reality, and then you can use it for the immediate period.
What are the must-haves for financial planning?
Martin Hurych
In order to plan, what prerequisites do I need to meet in preparation for planning? How do I need to structure my business in order to do any meaningful planning at all? Because it probably doesn't make sense to take a glass ball and predict the future. I assume we're talking about something more sophisticated.
Vlado Hanák
It's the same as when you travel somewhere by car. You know the destination, where you're going and you enter that into the sat nav. In the same way, the finance and the future management is disconnected from the fact that you need to know where you want to take the business, what your goal is. It can be in terms of profit, in terms of customers, in terms of volume, whatever goal that shows you the direction of that business. It doesn't matter if it's a goal you want to achieve in 5 years or 10 years. I've had a customer who was setting goals 20 years out, which is interesting, but the idea is to have that goal. In order to achieve that goal, you then create those operational steps that will get you to that goal sooner or later depending on how much time you're able to manage that business. You then translate those individual activities into that data and manage the business accordingly.
How to choose the granularity of the collected data?
Martin Hurych
A devil's advocate question comes to mind. How do you get the granularity of the data right? Something that I may be comfortable with in terms of data collection may be relatively simple and may not lead me precisely enough to that goal. On the other hand, before the shoot, we were talking about corporations where those analyses are very detailed, but for a smaller or medium-sized business owner, it can be overkill. In your experience, how do you choose that level, what else to collect and what's already unnecessary?
Vlado Hanák
Every company and every director of that company knows the level of detail they are capable of. We have a customer who has a hierarchy that has 10 levels on their product dimension. It starts with SKUs, of which there are a bambillion, and it gradually stacks up through product groups and various other levels to that overall total. It doesn't mean that the company has to have that plan at the lowest level, that's where it's important to choose the right detail in which you want to conceive and articulate that plan. At the same time, you have the ability to use specialized features just from APOLLO to break that plan down to that SKU at some level. That's called top-down planning, where you enter data at some level in that hierarchy and then tell the system to break those numbers down according to the trend of last year. It's a couple of clicks and the system can look into the past, find those trends there, the seasonal curves, the ratios between different types of products, and then it breaks that summary number down to the lowest level in that ratio. So you're not necessarily planning at the lowest level and planning more towards the bottom up, but you're planning somewhere that makes sense to you personally and where you're able to input those numbers with some precision. APOLLO takes care of the rest.
Martin Hurych
So we are talking about some business or manufacturing companies. How about service companies, or where there is custom manufacturing, IT and things like that, how should I approach it there?
Vlado Hanák
In the same way that you plan to sell a product in retail, FMCG or e-commerce. For service companies, their product is their service. If it's an IT company that does IT projects, for example, the IT project is also defined in time, in budget and in some detail, resources, operating costs, capital costs and depreciation related to it. So you're able to break that project, which you can think of as a product, down into even more detail. You plan it out so that you can manage it not only in time, in budget, in resources, but then you can promote that number for the whole project into that financial plan. So then from there it's just a matter of that detail and that process.
How far does the business have to see for the plan to make sense?
Martin Hurych
To make sense for you, how should the business see far ahead, for example, so that the plan isn't just a purely virtual financial exercise? Because I imagine that a CFO can make a bunch of masters without any collaboration with anyone else in the company, I've experienced it myself a few times. Where should I see the business within next year's plan to feel that the plan is meaningful and achievable?
Vlado Hanák
The business itself needs to manage its future in time according to the life cycle of the business. There are products and services that are sold more or less instantly and it's actually an instant sale. But then there are products and services that have a finite lifetime. For example, for us, the business cycle lasts maybe half a year, maybe even longer. It depends on the nature of the business. The fact that the CFO can make a business plan is just that he will say the goal is that the business will bring in some volume, some number of new customers, some sales for the year. The store then breaks it down to that operational level based on the lifetime and the business cycle, and he can easily do multiple variations of that plan again, and he can easily do calculations on a daily basis in the extreme. We are able to feed business results and even financial numbers into APOLLO on a daily basis, even every night. The trader comes to work in the morning and has a report in the mail showing him what his goal is for a certain period, what he has done and what he still needs to do to meet that plan. We then calculate not only the yet to date information, but maybe the yet to go, or the months to go, so that the trader can see how much more he has to do to make the sale and meet those goals. We also give him tools to find motivating factors for his customer. A nice example can be from the field ofFMCG. A merchant comes to a customer and tells him that if he buys two more cartons he will get a better discount level, he is in better shape, therefore he will buy more, it costs him less and the merchant will meet his goals. This is a win-win for both parties. This is terribly complicated to do in Excel, whereas in, say, APOLL, it's a matter of a few clicks or mouse drags.
How to plan - according to costs or market opportunities?
Martin Hurych
I'm going to take a step back, although now I'm not entirely sure if we're not going a little bit outside of what you do, so I'm going to ask more about what you might be seeing with your customers. I'm seeing two approaches with my clients to doing a forecast for the coming year. The first approach is typical and we just described it. The CFO tells the business what the business has to deliver, which in my experience, if the business is not able to deliver that, very quickly leads to total disengagement of people. Because they see that the target is unachievable and they won't touch the lollipops. The other approach is much more capitalistic and says business, what it is able to deliver and accordingly cuts costs in the company and resources adequate to what the company is able to get to the market. I'd be interested to know what is a better approach for you in ADEOS and what you see being used more in the marketplace among your customers.
Vlado Hanák
We're able to adapt to the needs of that customer, so we're more about listening to that customer and listening to their needs. My view of the business is that I need to see what the potential is in the market. We have a customer in FMCG, I look at how many similar companies in FMCG in the Czech Republic and Slovakia because they are very likely to be dealing with the same thing. Then it's a business case where you need to warm up that contact, ignite that potential and work with that customer and explain to them what benefits they can get from that solution. We might as well use the arguments that I've recently heard directly from the customer. He told me that their competitors have some sophisticated solution, it's helped them tremendously and they're outperforming them, they're better, they have more market share and they need it too. That, too, is a selling point for me then, why a company like that should use software like APOLLO. So you need to look at the potential in that market and map out how to milk that potential and grab your piece of the pie.
Martin Hurych
So I build the rest of the company based on what I am able to sell, not just do an apollo exercise and spit out spreadsheets and push people into unrealistic plans. Am I getting this right?
Vlado Hanák
For me, it's definitely a better approach than breaking it over the knee and rushing somewhere that the company is ultimately not capable of going and risking a deterioration of the atmosphere in the company. I tend to go in that direction, and I'm not saying that it's going to happen here either, that we try to ride multiple horses at the same time at times, but it still needs to be managed in such a way that it works out in terms of time and quality. What I pride myself on is that our services meet those key arguments and that is the quality and the time of that delivery. Those are the two key aspects of the project for me, ideally within the budget that we agree with the customer, of course.
What is needed to manage profitability?
Martin Hurych
One other big thing that stood out to me, leaving aside a bit of forecasting, is profitability management, which I think is extremely important. Come and tell us how you look at this whole thing at ADEOS and how I have to have the data ready again to even think about something like profitability management at the service or product level.
Vlado Hanák
I agree that managing profitability is absolutely central to the whole loop of managing finance in companies. To be successful as a company, you need to make a profit on your products, on your services, and look at it not just through the lens of those products and services, but through the lens of your customers. These aspects are very important in that quick turnaround, or even in e- commerce, where that company needs to look at what and who they are making the most money on. After all, we are in a capitalist world and every single entrepreneur is in business to make a profit. You need to know what you are making the most money on and then orient your focus accordingly. Managing profitability actually means finding out the profitability, being able to assign revenues and costs to a given product, service, customer, channel. In part, it's a clear link because you have an invoice from a customer who buys your product, so there's a revenue on that product. Then you have an invoice from your supplier who does some marketing for the product, so you have an expense for the product. But then there's a lot of overhead that you can't directly and easily attribute to that product or that channel. So then you need to take that bundle of those costs and allocate, spread out and allocate those costs to those products, customers or channels.
Martin Hurych
Before we get into how this can be done, you mentioned FMCG and e-commerce a few times. I'll just point out that the exact same principles work at the level of, say, a factory. In fact, my group is more on that part of the spectrum, so that we don't get the idea that what we're about to talk about is not applicable to my bubble.
Vlado Hanák
Absolutely. It is best explained with simple examples like that, but as you say, manufacturing factories are the same thing, because the factory that produces a product also consumes some energy. It has a production hall, it has production lines, that line has some consumption and you are not able to simply say what invoice from the electricity supplier belongs to which product. In the same way that we break down the cost of renting an office, we break down the cost of energy, for example.
How to break down variable costs?
Martin Hurych
Now we're getting into the how, because I'm just encountering in some manufacturing companies that they're not able to tell the margin in detail because they're not able to allocate those costs. So then they're not able to tell which customer is making them money and which one is losing them money. So come tell us how to break it down to the penny so that we can do these analyses and say what customer is a superstar for us and what customer we need to make 20% more expensive to even stay afloat.
Vlado Hanák
There are two aspects to this, the first aspect is the easier one for me, and that's the technical solution, because the technical solution will help you unlock it in an automated way. The more important one and the harder one is the methodological side of things, where you have to say what type of cost you allocate with what allocation key so that it ends up on that particular product. That's sometimes long and endless discussions with that customer, where we're working out business-wise and methodically what type of cost to allocate with what allocation key so that it's as accurate as possible.
Martin Hurych
So can we have some examples, like energy in production?
Vlado Hanák
I'm sure. When you make a product, usually that product is made up of different materials, so you have a bill of material or BOM. You know that that particular material costs a certain amount of money, so you can assign that cost to the purchase of that material directly. So you have a BOM where you have the individual unit prices, you build up the material cost. Then you know that that product, to be finished at the end of that line, has to go through such and such a line, such and such a specialist has to be there, and you know that an hour of running that line costs x. At the same time, you know that in one hour of operation you will produce 100 units of that product on that line. So you then use these relatively simple ideas there, and at the end of it you get a clear message that you need to use the capacity of that production line to distribute the energy. Now consider that you have 5, 10 of those production plants, each plant has different lines, each type of product is only produced somewhere and getting that into Excel is difficult. When you have the platform to do it, and you have the platform to do it.
can help, so you can concentrate on setting it up accurately. Then the methodologist picks a given allocation key for that cost group and then can consume the output from that allocation relatively quickly and manage that business. So he doesn't have to wait for something to be calculated overnight or over the weekend.
How to break down fixed costs?
Martin Hurych
I think that's the understandable part for a lot of people. What about the CEO, marketing, sales and accounting department?
Vlado Hanák
The way I see it is that every company has a backbone department and a backbone production department that makes money for that company. Accounting and marketing are the support departments that help that company in or out. If you have three accountants that have their salary, sitting in their warm office, then again you have some expense that you allocate to all the products or to some group of products according to some other key. Here we might as well talk about the allocation key, the number of square feet of offices they sit in, or the phones they use. There, you can come up with a group of supporting keys again, according to which you can allocate those overhead type costs.
Martin Hurych
What did we leave out?
Vlado Hanák
A lot of things, because we can usually talk like this for hours and hours. I tend to stutter, so my sales presentations to customers usually drag on and usually get us thrown out of our seats. I enjoy the field immensely and it gives me great purpose to do what we do. When we finish that project and we deliver APOLLO to a customer who starts using it, and then you see the smiles or how those people are able to draw those benefits and how it helps them, it's very satisfying. Then it's awfully nice when I'm driving down the highway and I see a logo on a billboard and I'm like, here they have APOLLO, they're using it and they're happy with it. Then they come to us with other ideas of what else APOLLO could do.
What sanitation costs next?
Martin Hurych
I'm gonna take a step back. So I've got my costs all messed up, what's next? We're still talking about profitability management, cost allocation is just the first step, so what's next with the analysis so I can really start to drive profitability on an item, on an order, on whatever I want?
Vlado Hanák
At the moment when you have allocated revenues and costs, you actually have a purposeful profit and loss account in the greatest detail by product and by customer. This loop is actually endless, you repeat the process over and over again on a regular basis and what you can do with it afterwards is some simulations and what-if analyses. You have the allocation and the profitability and that special purpose income statement for a period that has already happened, you have it for a period that will happen, and you can play with some parameters and simulate different variations. What happens if the krona falls against the dollar, against the euro, what happens if the price of energy happens to rise? When you take that process of that plan or forecast and you get it to that form of a purposeful P&L by product and by customer, you have a net margin, product, customer,
month, or Week. That's the first step, but then you need to manage the short-term future accordingly. You can see from the business plan that a customer hasn't taken as many products as the retailer thought they were going to sell them. So you need to turn that rudder and look at which customer, on the other hand, maybe is pumping and ordering more and focus on that. So then it's kind of a never-ending cycle of that management and that steering of that ship, that company according to what we've planned, what the reality is and what to do with it to achieve that annual target.
What should convince me to do financial planning?
Martin Hurych
This is music from Mars for a lot of people. What should convince me to go for it?
Vlado Hanák
I think that there are many arguments why these companies want to do this. One important aspect is the technical limitations of Excel, where Excel just isn't technically sufficient anymore. The other aspect may be when that company sees that the way they plan something is not delivering and that reality is completely different and they need to change their approach to that planning. Then I would certainly mention that if that company has the need and the desire to expand, to somehow develop and expand its scope, then it needs more salespeople, more production lines and so on. You can't quite cram that into Excel either. We could come up with a lot of reasons. Then there are field- specific reasons. So if we talk about that production, for example, it's the length of that cycle, how long does it even take that company to get the outputs to manage against. Because it happens that the CEO gets those outputs when it's too late. He can't do anything about it then because he took too long, waited too long for those outputs.
For which companies does financial planning make sense?
Martin Hurych
As I was listening to you, I was wondering, since what size of company does what we're talking about here make sense? Again, we've said here before not to overkill, so for what size of companies does what we've described here already make sense?
Vlado Hanák
I would say that the size of the company in terms of number of employees or turnover is not the key factor. Of course, there are companies where the process is simple and Excel is really enough for them. I would say that in the corporate world it's a no-brainer, but even in the SME world, even for SMEs, it makes sense. So I wouldn't want to say if the company has less than 10 employees, don't do it because even with one person, APOLLO can do a lot of music. The same is true in terms of turnover, because if that company has a turnover of 100million, it has some profit, some profit, it may feel that it is not able to finance it. Here at APOLLO we have packages for the SME segment where we are able to put that price tag together much more efficiently compared to those giant corporations.
Martin Hurych
Thank you for the interview.
Vlado Hanák
Thank you too, Martin, thank you very much.
Martin Hurych
That was a discussion on finance with Vlad. If you are interested and if you are currently thinking about what to do next with finance and its management and forecasting, we have done our job well. In my enthusiasm I forgot to tell Vlado about the bonus, I'll be sure to pull some out of him afterwards, so be sure to check out www.martinhurych.com/zazeh where the bonus will be mentioned below this episode. I only wish you success and keep my fingers crossed, thanks.