There are no doubts about the amount of work and responsibility a CFO has. From tracking cash flow, making financial planning and forecasting, building a finance and accounting team, to driving revenue. How could it be even more challenging? By becoming a franchise CFO.
Abraham Sherman, the Chief Financial Officer at EYM Group, will share his experience as a franchise CFO and some of the specific challenges that come along with that. He also dives into a CFO's role in driving cost savings and adopting a proactive attitude in identifying those opportunities.
Welcome back to CFO Weekly, where we're talking with financial leaders about how to build efficiency in their teams, create time for strategy, and ultimately get results, with your host Megan Weis. Let's jump right in.
Megan Weis: Today my guest is Abraham Sherman. Abraham's professional background outlines 20 years of accomplishment, combining in-depth finance, tax, and business administration expertise to integrate and align cost-effective solutions with complex global operations and continued growth goals. Entrusted as a solutions-focused financial expert, an advisor of board of directors and executive decision-maker teams, Abraham is committed to sustaining financial health and driving business value by maintaining his current knowledge of evolving tax laws and identifying opportunities to maximize resources, forge profitable partnerships and enhance asset value while reducing risk and maintaining regulatory requirements.
Abraham is a fully engaged and hands-on team leader and collaborator who takes an interactive position in developing quality teams, promoting cohesiveness across all professional levels, and delivering measurable outcomes. Abraham, thank you so much for joining me on this episode, today.
Abraham Sherman: No, thank you. Thanks for the invitation.
Megan: Yes, today we're going to be talking about the role of a franchisee CFO and some of the specific challenges that come along with that, as well as taking a broader look at a CFO's role in driving cost savings and being proactive about identifying those opportunities. As always, let's start with a little bit about you and how you got to where you are today.
Abraham: Well, actually it's fascinating story. I started my career with Price Waterhouse in Mexico City. I was transferred from the Mexico City office of Price Waterhouse to the Houston office where I worked for a couple of years until I made partner in the International Tax Group. I was the partner in charge of the Latin American [inaudible 00:02:20] tax practice for the Southwest region for a couple of years. I was traveling 80%-90% of my time, and this was before 9/11.
After 9/11 traveling became a hassle, especially international travel, which I was doing a lot. I decided to take a role as the chief accounting officer for a privately held company in San Diego, California. The company owned several car dealerships and difficult real estate assets, a golf course, a marina. We were very large corporation. Then through a really accidental encounter I ended up touching base with the owner of the company here in Dallas. I was in San Diego, California for 18 years, and then I took this position of CFO eight/nine months ago, and I've been here in Dallas, Texas since.
Megan: You started off your career specializing in tax, so how do you think that that gives you an advantage as a CFO? Or is that actually a challenge?
Abraham: As always, it's a gray area. It's not completely black and white. I think it offers some significant advantages, and then also some challenges, because obviously a lot of the work that a CFO should do is the preparation of the financial statements, or the certification of the financial statements of the entity, I should say. I know this background it's also very helpful with respect to the CFO's role, but as always, tax is a key driver of the decisions of the company. As you know, we all pay taxes because we have to, not because we want to. As always we're looking for ways, this is no different in any other business, to minimize the tax burden of our corporation. In that sense it's very helpful because it gives you a wider understanding of the strategies that are available to us to mitigate our tax burden.
Megan: As you look back on your career, are there any particular stories or turning points that stand out in your mind?
Abraham: I've been a tax practitioner for many years, and the most significant one, in my opinion, was the Tax Return Act of 1986. Also, I should say it does apply in my role right now because my role is purely domestic. We only have operations here in the US. In the past I was dealing in the international arena. Obviously, there have been many, many significant changes in the international tax arena, but the one I remember the most was the Tax Return Act of '86 when they came up with the passive activity loss rules. Partnerships and passive investments were widely used as a tax planning technique, and that was significantly reduced by the Tax Act of '86.
A lot of investment vehicles that were available were significantly affected by that. There's always challenges. That's interesting because people always come up with new ideas and you achieve 100% legal significant tax savings, and always the IRS comes up with rules to curtail those opportunities. It's an evolving process because people come up with new ideas, the government closes those loopholes, and it's a constant challenge. The beauty of that job is that you're always learning, because you have to keep updating yourself, you need to read all the time. It's fascinating to me.
Megan: Yes, and policies flipflop based on who's in office, and it seems like taxes get more complicated with each passing year.
Megan: Talk to me about your current organization EYM Group, and what it is that they do.
Abraham: In EYM Group we're a franchisee company. We own over 300 restaurants, between 7,000 and 8,000 employees, give or take. We handle five brands. We have Pizza Hut restaurants, we have KFC restaurants, we have Burger King, we have Panera Bread and Denny's. We operate in eight states in the country.
Megan: You joined them right in the thick of COVID. How was that, and why was that?
Abraham: It's been a challenge. I decided to move here to Texas because my kids moved to Texas, so it was a personal driven move, not necessarily a career oriented or money oriented move. It was for me a match made in heaven also from a business and from a professional standpoint, because business-wise I'm learning a lot. This is a new industry for me. Although I should say that I have a lot of work experience with car dealerships, and I found out that there are a lot of similarities between a car dealership, the way it operates, and a restaurant franchise. Nobody would say a dealership is a franchise, but it operates as such, more or less.
Concepts are very similar. You're buying the product from, not the factory, but, the approved vendors by the franchisors, so there are a lot of similarities in that business. Like I said, the move was more personal than professional, but it's been a fascinating experience for me. I've learned a lot and, hopefully, I've also contributed a lot to the company, and obviously, I have, because as you correctly stated, the challenges with COVID have been nothing that I've ever seen in my professional career. Supply chain, labor issues, you name it. We've had a lot of challenges. It's been a very interesting time.
Megan: I was just thinking to myself that labor shortages must be a huge problem for you right now, but you're right, supply chain is probably equally as large.
Megan: You've been there now for just under a year. As you look back on the last year, what are your proudest achievements?
Abraham: Well, we've had challenges. It was not a difficult process, but a laborious process. One was to obtain our PPP loans and obtain the forgiveness for those PPP loans, which were a lifesaver in our industry. The restaurants were decimated by COVID. We had to shut down a lot of restaurants during COVID. In some restaurants sales haven't recovered because some people haven't decided to come back to work, so we still don't have enough people. We don't have enough employees in our restaurants. We're trying to find out where we can find these people. The supply chain issues have been another one, so negotiating with vendors.
It's amazing that sometimes in a restaurant, we don't have product to sell. That's been a challenge to negotiate with our vendors, a tricky thing. The products that we need to sell to our customers [unintelligible 00:11:13], but the main issue for me has been managing people. I think there's been a huge transformation in the culture of people. I don't know if it's politically correct to say this, especially in this forum, but I think culturally if I offend people by saying this, I hope it doesn't come across as incorrect. I think the new generation of professionals is a little bit entitled. When I grew up, I was used to working like public accounting, 16-hour days, 7 days a week. I feel that the new generation doesn't want to work as hard.
Megan: I have heard that.
Abraham: Because they have other priorities. I'm not judging. I'm just stating the reality.
Megan: Yes, they do.
Abraham: People have other priorities. For me, it was very important to grow my career. I knew that the only way I could do that was by working really hard. I was professionally driven. I wanted to become a partner, so I wanted to work as hard as I could. I think people now are not as professionally driven. They want to take it easier in their life, in their professional career. Nothing wrong with that. I'm just saying-
Megan: No, not at all.
Abraham: -it's very different than when I grew up and it's been a challenge adjusting to that, because I could expect from my employees the same thing that I gave when I was mean growing up through the professional ranks, and I've come to the realization that that is no longer the case.
Megan: Yes, I think a lot of young people are searching for more meaningful work and more flexibility in the work they do. Yes, I've definitely heard your sentiment before. As we look at the franchising environments, what is the role of a CFO? How does your role change, do you think, for a franchise versus the corporate world.
Abraham: In other companies, I would say the role of the CFO is more strategic; obtaining financing sources, dealing with tax issues. Here, the main driver is the operations. Here we all need to roll up our sleeves every day, and work in the operation every day. We need to make sure that we have enough cash to pay our vendors on a given day. Any CFO, most significant priority I would say is always managing cash flow. In the restaurant business a little bit more so than that, because one thing that has also been a learning experience in the franchising world or in the restaurant world, is the realization that we're now dealing with third parties. That business model is a little bit new.
We have vendors or providers like Uber Eats, Door Dash, Grub Hub. They haven't been around many years and it's a completely different business model for franchisees. You've probably seen their ads on TV. I don't know if you've seen them, but Domino's Pizza, for example, is offering incentives to their customers to bypass third parties and buy directly from the store, because the use of third parties while it has allowed us to grow our business, it has also reduced our profits because of the fees that we have to pay to the third parties.
Megan: That's interesting. I had no idea that you guys paid fees to those third parties. I just thought it was the consumer.
Abraham: Very few people know that. I want you to take a look at this just to prove meal payment right. If you go and order a food through Uber Eats, for example, and I'm not picking on them, because you can do this with any app, their prices are going to be different than if you go to the restaurant, so there is a small markup. Obviously, that price increase does not pay for what we pay to the third party. They make their money I shouldn't say on both ends, because the customer pays a little bit more but we absorb the brunt of the fees. We definitely make more money in the restaurants than by selling through third parties.
Megan: Yes, those platforms must be banking, with [chuckles] all the fees they're charging.
Abraham: Look, with the pandemic also, their business has grown tremendously.
Megan: Yes, people don't want to leave their homes. It's brilliant.
Abraham: I can tell you that's also been an interesting case in our business because on take out restaurants business has grown. In our restaurants business has slowed down because, again, the traffic in our restaurants is low, we cannot find the people to open our restaurants 24 hours. People don't want to dine in at restaurants as much as they used to. The consumer’s mind is shifting every day.
Megan: Yes, you guys are getting hit from all directions. I'm sure restaurants have definitely been one of the hardest industries the last two years.
Abraham: Absolutely. The hospitality or the restaurant industry have been the ones that I consider have been the most affected by the pandemic, economically speaking because we can never underestimate the impact on the healthcare industry, and everything that the healthcare professionals have done in keeping us safe. Obviously, if you asked me that's the industry has been mostly affected. I'm talking economically speaking, [unintelligible 00:18:01] reinvent it and [unintelligible 00:18:03] money flowing.
Megan: Yes, healthcare has taken the physical brunt. It seems like restaurants and hospitality have taken the economic brunt. If there's a CFO out there considering this role for a franchisee company, what do you think that they need to know or what should they be thinking about before taking on this role?
Abraham: Well, number one, that it's a very labor-intensive business. The restaurants are open in most cases, seven days a week. If you're thinking this is a job from Monday through Friday, there is always an emergency happening in one of our restaurants. There's always something that comes up, either an equipment repair that is urgent that you need to approve, there's been an accident at the store, you name it. I can write a book about all the things that I've faced in the short period of time I've been here. Because, like I said, it's 100% operations job. You need to be there 24/7 almost because things come up. To me the biggest disappointment that I should say, unfortunately, is there's a lot of theft going on both internally and externally, the restaurant business.
Megan: Let's switch gears a bit and talk about your previous employer Sun Road Enterprise. While you were there, you took on two projects, one of which saved the company $1 million annually and another that saved $2 million. Talk me through these projects and what your strategy was that lead to these results.
Abraham: Well, there were a couple of projects. You're probably talking about my profile. I can tell you the biggest one that I took was to implement the centralized treasury. What would happen is you have different entities. In the old days, each entity had its own operating bank account. If an entity needed cash, then we didn't have enough cash, we had our lines of credit, we would borrow from those lines of credit on a given day. Then on entities where we had excess cash, the cash would be just sitting around in a bank account earning no interest. On the one hand, we have cash sitting idle in one company, and paying interest on another.
We consolidated the treasury. Banks offer this service called a CTA account. The bank would sweep all the balances and the corporate office would act as let's call it the bank for the group. Then we would sweep all the cash, concentrate it in one account, and release it to the entities that needed the cash. Therefore, we saved a ton of money by not having to pay interest on money that as a company we didn't need. On a standalone entity, we probably needed some cash infusion but not company-wide. That triggered a lot of the cash savings for the company.
Megan: Yes, I imagine being able to use your own money where it's needed.
Abraham: Absolutely. Now people take it probably for granted. Years ago when we started this it wasn't as popular as it is right now.
Megan: How is it that CFOs can become more proactive in identifying these types of opportunities?
Abraham: Well, you always need to be on the lookout as a CFO. That's what I said that the need to reinvent yourself is always there. I spend a lot of time every day reading articles, reading the news. We need to see what is happening in the world. How is the world going to be impacted? Whether the Federal Reserve is going to increase interest rates. You need to keep abreast of what's happening around us. Also, I try to attend once or twice a year seminars for self-improvement. Like I said, financial seminars or tax seminars are at the top of my list because, otherwise, you couldn't survive as a CFO without constantly reinventing yourself.
Megan: I'm just curious. Do you spend time in the restaurants themselves?
Abraham: Not much. I will tell you one of the first things I did when I came here is I went to the restaurants to work there. As a waiter, as a cashier, because it's very difficult to manage something you don't understand. I can tell you that was also an eye-opening experience for me because I think some people think it's very easy to do what people at the restaurants do.
Megan: It's not at all.
Abraham: It's not at all. I can tell you, like any business some customers are fantastic. Some customers can be very difficult. You need to manage those equations. The hours are long. The pressure is there. I can tell you most of the time that the workforce are very unappreciated. I can tell you it was very important for me to understand how do we count the inventory at the end of the day. How do we manage spoilage? You can't do it if you haven't spent the time at the restaurant.
I did it at the beginning. I try to go once in a while. Like I said, we have five brands. We have only one here in Texas. I do go to a couple of our restaurants once in a while to see how the restaurant looks. It's very important to look at the appearance of the restaurant. I only do it in Texas. I haven't been able to travel that much during this time.
Megan: Are there any tools or technologies that you're using at the moment that are helping to make your life easier, whether it be you've just transitioned to a new ERP, you're considering a new ERP or some project management tool? Is there anything out there?
Abraham: Obviously, the ERPs are at the top of the list. Not to advertise which ERP we're using, but we are operating to the new version of the ERP that we're currently using right now because that's a very significant tool for us which allows us to approve Accounts Payable remotely. It allows us to scan those invoices from our vendors and we can review them online and approve them. We don't have to be in the office to review invoices and to pay checks because we can print the checks in the system with our signature. That in itself has saved us a tremendous amount of time. The implementation was very difficult.
The AP part was implemented before I came on board but it was a very significant project. Now we're trying to improve the capabilities of our ERP system with the banking modules to handle our treasury on a more efficient basis. Because the other thing that we do that is very challenging in our particular case is, like I said, we have a lot of restaurants. Some of our restaurants are in remote locations in a couple of states. They're not in your typical large city. They're in a remote location. For example, we have restaurants in Indiana which are far apart from each other. As you know, the restaurant also sells a lot in cash. We have to make sure that cash gets to the bank.
We try to also manage our expenses but that's another thing. Margins in the restaurant business are very small. Margins are small. We make our money on volume, not on margin. In order to make money, we need to handle volume. Every penny that we save adds to the bottom line. It can be very significant. For example, if you sell a $10 pizza, how much money can you be making on a pizza? The way I view it is how many hamburgers or how many pizzas do I need to sell to recover those fees? We try to watch pennies in this business.
Like I was trying to explain, in that in these restaurants, in this five locations, we have to ask people to go and deposit the money in the bank. Then we need to bring it to our treasury here. If you don't manage that process correctly, the bank fees can add to a lot of money. I can tell you it's a lot of money. That's one thing we're constantly evaluating.
Every single day, we're looking at bank fees. We used to do the sweeps manually because they're different banks but with a new platform that we're going to, hopefully, we'll be able to automate the process.
Megan: I'm just curious. Do you guys attend any technology conventions for the restaurant? I'm sure I've been to one at some point in my life, but technology conventions for restaurants?
Abraham: Well, I haven't yet. I can tell you our franchisors do a wonderful job doing that. They stay at the forefront of the technology. I can tell you they're the ones who provide the back end, or the technical support on a restaurant in terms of [unintelligible 00:28:59]. That's the beauty about the franchise business. It's a lower risk than building your own restaurant because you know a lot of people try to build their own restaurants and God knows how many restaurants fail on a given year.
Megan: Yes, probably 95% of them.
Abraham: It's a very risky business. If you're buying a franchise, you know it's a proven business model. The franchise fee that you're paying or the royalties that you're paying and the franchise fee definitely pay to mitigate that risk. Coupled with the support that the franchisors provide to us, looking for those new technologies and the third parties. I don't want to single any of our franchisors but they do a wonderful job in staying at the forefront, technology-wise, business practices. That's why those royalties make sense because you're getting your money’s worth.
Megan: It's a beautiful relationship. When one party wins, the other party wins as well.
Abraham: Absolutely, and at the end of the day also, the big winner because let's keep in mind that the most important part of this equation is the customer. At the end of the day, neither the franchisor nor the franchisee would survive without keeping customers happy. What the customers get in return is they know they get a quality product regardless of where they go. They're used to getting same quality in that restaurant no matter what the location is, and that's very important. That's why the franchisor keeps a very close eye on
their franchisees to make sure that the quality doesn't slip because at the end of the day that brand is worth a lot of money.
Megan: Absolutely, that's probably the most important asset. The most important intangible asset that a franchise has is the quality of their product.
Megan: Lastly, as a CFO, looking out at the next 6 to 12 months, what's keeping you up at night?
Abraham: The biggest one to me, or two, and I stated those earlier in the conversation. First, the supply chain, because product availability has become a very big issue for us.
Megan: I wonder when that's going to resolve.
Abraham: I have no idea, to be honest with you, but that worries me. I don't care which industry you're in. You see that. I've been reading like everybody else the news. You know the car industry are suffering. There's no inventory. You go to the grocery stores you don't see products. It has affected the entire world, and that's why you see the rise in inflation, which would be my number three concern. Inflation has to be kept under control because we know the catastrophic effect that inflation can have. That would be my number three. Number one, like I said supply chain, number two staffing, and number three inflation.
Megan: Those all sound very familiar. Abraham, thank you very so much for joining me on today's show.
Abraham: Thank you so much for invitation, Megan.
Megan: I really enjoyed speaking with you and hearing about your experiences and all of the resulting insights that you garnered from those experiences. I appreciate you taking the time to be here with us today and I wish you and EYM Group all the best. To all of our listeners, please tune in next week, and until then, take care.
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In this episode, we discuss the role of a CFO in a franchising environment, financial strategies to save and generate millions of dollars, why CFOs need to reinvent themselves constantly, and many other interesting topics related to franchising.
What Is the Role of a CFO in a Franchising Environment?
The most significant priority of a franchise CFO is to ensure enough cash to pay the vendors on a given day. Being a franchise CFO is a very labor-intensive role that requires you to be involved 24/7 in solving problems and emergencies.
“The role of the CFO is more strategic. We need to roll up our sleeves every day.”
A Franchise CFO Saving and Generating Millions
Working for Sunroad Enterprises, Abraham took on two projects, one of which saved the company a million dollars annually and another that saved two million dollars. He describes the strategy he applied to make this happen.
“There's always an emergency happening or something you can solve. I can write a book about all the things I've faced in my time here.”
How Can CFOs Identify More Financial Opportunities?
A CFO needs to reinvent constantly, inform himself, be aware of new trends and business directions, attend financial seminars, and so on.
“You could not survive as a CFO without constantly reinventing yourself.”