Cooling Off the Cash Burn

How William Goldstein, CFO of Integro, an insurance brokerage, helped the firm modify its great expectations.

What tasks were you charged with when you joined the firm as controller in 2006?
I was essentially charged with building the financial systems from what were basically QuickBooks. You could walk into Staples to buy our initial accounting package; within 12 months, we put in Oracle Financial. We established internal controls across the board and built a very quick financial closing process. Every month we close our books for that previous month. We issue our year-end and quarterly accounts within 15 business days of the month.

What are some of the principles of establishing good controls?
We’re a cash business, so you have to have controls over your cash. That means having to be on top of your receivables: understanding billing cycles and payment cycles of clients and making sure that we’re delivering what we need to be delivering. We’re transparent in the delivery of our services as well as in the form of our compensation, and that allows for a little bit more efficient cash-collection cycle.

That enables the brokers to know when they need to bill. It’s very rare that we have receivables age over 30 days. We’re billing on time, collecting on time, and we don’t use collection agencies. We don’t have those kinds of problems even in the recession, knock on wood.

We also made sure that we had the right segregation of duties, separating the approval function from processing and payment. For example, the person who processes accounts payable will also get involved on some of our payroll issues. But nothing is in an approval capacity — it’s purely processing. People who have the approval capacity wear a lot of different hats at a small company, though. We’ve embodied the entrepreneurial aspect, but still kept in mind the importance of internal controls.

I’ll give you another example: I sign checks. I cannot enter anything into the system. I can’t enter a journal entry into the system. If I approve a journal entry, I have someone do a second review afterwards. We’ve built the proper checks and balances so that we’d never have an instance of a management fraud, of management moving the numbers. In three and a half years we’ve had no material weaknesses, no internal-control deficiencies.

What’s your relationship with the board been like?
They’re very supportive. We use them quite a bit as a sounding board. They’ve gone through some tough times early on to a point at which we’ve achieved some economic stability. Hopefully, in the next two years we’ll start to produce the cash flows that most insurance brokers are known for producing.

Do you hope to go public?
There are a number of different capital-raising strategies. I would say an IPO is definitely an opportunity.

What would be the threshold for an IPO?
I think it would be trending toward producing a positive margin and a positive cash flow. We’ve demonstrated we can get our expenses in line and that we can continue to grow at a 20% clip, which we’re doing now. If we produce a year or two of positive margins and show that they’re continuing to increase, I would expect there to be a discussion about what’s the next step for Integro, whether it’s an IPO or a private offering.


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