A Crash Course in Working Capital

Karen Daniel, CFO of privately held Black & Veatch, is a stickler for GAAP and wants every manager to understand how their daily tasks affect corporate working capital.

Do you have a strong feelings, one way or the other, about the United States mandating IFRS?
I think in some ways it is a good idea to have one set of accounting rules and practices. But I have to qualify that by saying some of the more controversial questions about IFRS have not yet been decided, and I wouldn’t want the U.S. to mandate something before we get those issues worked out. It’s important to make certain that we are moving in a direction that’s going to give us the outcome we originally desired. 

Tell me a little more about your employee “value creation” training.
In finance, we have taken the lead to ensure that everyone understands how our clients view value and how we are responsible to create value for them, and us. We run sessions as part of the management training that, depending upon your level and responsibilities, can last the whole day. For the most part, those classes are taught by our treasurer. If you’ve been away from it and you want a refresher you can go back. In 2008, for example, we had probably 10 of those courses around the globe. We try to make sure our employees [Black & Veatch has 9,000 worldwide] have the business acumen to understand our relationships with our clients.

How so?
It’s really being able to connect how your decisions help your stakeholders, clients and business partners be successful. Our metrics are basic — earnings and cash — but they have a significant impact. As a result, everyone knows how to monitor and manage the working capital positions of their projects. We use traditional metrics to measure working capital, like days sales outstanding — the DSO of our projects. We carefully monitor our invested balances for liquidity and return. Again, what’s most important is that every project team has the responsibility of understanding and performing against their working capital position.

Are there certain cash-flow red flags that you keep watch over?
We have metrics around the aging of receivables that we keep a close eye on. So receivables would be the primary one, given that most of our assets are committed in the execution of projects. It’s a basic metric, but it has a powerful impact when everybody understands and is committed to monitoring it.

In 1999, Black and Veatch became an employee-owned company. Why the switch from the partnership model that was used for nearly a century?
Research indicated that companies that are owned by their employees tend to have greater success and profitability, and part of that is because everyone is rowing in the same direction.


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