Courtney Leimkuhler is the co-founder of Springbank Collective; an early-stage investment firm focused on building the infrastructure to close the gender gap. By investing in companies creating the tools, platforms and services that address the themes of care, career and household consumer, Springbank's goal is to catalyze the new care economy and the future of inclusive work. Courtney also serves as a board member and advisor to several young fintech and insurtech efforts, including Wellthy, Coverwallet (sold to Aon in 2020), Betterment, The Commons Project, and Asta Capital. Courtney spent nearly 20 years in the financial services industry. Prior to starting her firm, she was the Chief Financial Officer of Marsh, the world's leading corporate insurance broker and the largest operating company of Marsh & McLennan Companies. Here, she provides a landscape overview of common financial terms and shares valuable advice targeted both at business founders and those running divisions of larger companies.
What would you say to executives who feel embarrassed about their lack of financial knowledge?
When I took the job at Marsh as the CFO, I had never been a CFO before. I'm not an accountant. I haven't come through an accounting firm. I went in there as someone who was a strategic person who did a ton of M&A. When I ran the budget for Marsh, it was the first time I had ever run a budget. I made it very clear that I had not done this before and found people in the organization that I could trust. One of them was a woman named Diana who came to my office, took out a P&L, and walked me through it.
It's okay not to know. There are many trusted people in the organization who have a lot of technical knowledge and respect you for your strategic insight. They recognize your value and respect you as a leader. They will not have diminished respect for you because you're willing to ask technical questions or ask them to be your guide. It will not compromise you to be nervous when it's time to talk about financials in a board meeting. Asking questions and getting insight from technical people inside your company or in your network is not a weakness.
I think we can all identify a point in our careers when we felt like we missed our chance to ask the finance department certain basic questions. What are the fundamentals we should know?
Right, so here's what's in that stack of thick paper your finance person is running around with.
Profit and Loss Statement/ Income Statement (P&L): A financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.
Balance Sheet: A financial statement that reports a company's assets, liabilities, and shareholder equity.
Cash Flow Statement (CFS): A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.
These three statements are all interrelated and talk to each other. Whether you're running a business or starting a business, you'll find that secrets lie in all of them.
My advice to those running divisions is to understand at least some of how operating income turns into net income because at the end of the day, if you are running a public company, net income and EPS are what matter.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): EBITDA is an important valuation metric used to measure a company's overall financial performance. It calculates the income of the company before paying the expenses, taxes, depreciation, and amortization.
Operating Income: Operating Income is an accounting figure that measures the amount of profit realized from a business's operations after deducting operating expenses.
Net Income/ Net Earnings: Net income is gross income minus general expenses, taxes and interest. It translates directly into earnings per share if you're a public company.
Earnings Per Share (EPS): EPS is calculated as a company's profit divided by the outstanding shares of its common stock. It is the net income that the business has generated. It's revenue minus all your operating expenses, minus all the other costs, taxes, and interest. It's not necessarily an operating cost but based on how you finance your business it is a part of running it.
Working capital: Working capital is a fancy term for payables and receivables. Anyone who's run a small business knows that this is your lifeline.
My advice is to have very high expectations of what finance can do for you. If you don't have good financial support that gives you insight into the business and helps you develop that intuition, ask for more.
What's the difference between management reports and financial reports?
Management reporting gives managers and business leaders key insights into the real drivers of performance. And it's full of acronyms. I'll just hit on a few of them.
First is BS: That's a bit of a joke, but it stands for Balanced Scorecard. Don't let that one get you tangled up in knots. It's the idea that there's more to life than financial statements. A balanced scorecard includes many different metrics around business health, people management, and culture.
ROI vs IRR: They're both very traditional finance terms, related but different. Return On Investment (ROI) is thought about on an annual basis. What am I getting back from the investment I made? Internal Rate of Return (IRR) is a metric used to estimate the profitability of potential investments - it has to do with understanding my return in the context of risk. What do I have to earn on my money every single year in order for me to feel like this was worth taking this risk?
OKR vs KPI: Objectives and Key Results (OKRs) are collaborative goal-setting methodologies used to set ambitious goals with measurable results. Key Performance Indicators (KPIs) are quantifiable metrics used to gauge long-term performance.
Do not pick KPIs that are easy to measure just because it's the first thing your finance system spits out, think about KPIs with a blank sheet of paper and an understanding of what things will drive your business results. Often what you need may be a little harder to access, but it's worth it.
My other advice is to use the same metrics every time. It makes it easier to tell the story of a company's performance to an investor, board member, or CEO when you compare the same report each time. It's critical for building your knowledge, your intuition and your credibility.
How does intuition relate to financial knowledge?
It is number one. To build up your intuition, you need to understand the key ratios and the key metrics that drive your business. In order to grow your business, you have to outrun the revenue you lose. Businesses grow by either reducing attrition or increasing revenue sources, super basic.
So when I say build your intuition, I mean understanding the relationship between lost revenue and new revenue. You need to understand how the books are rolling over, maybe six months ahead of time so if you lose a big client, you will have already started to ramp up efforts to get new clients. You don't have to wait until the quarter is over. By regularly keeping an eye on the P&L you can build your intuition and make the necessary adjustments.
What are some of the basics of mergers and acquisitions?
I have done M&A my whole life. I love it! They are such a pain, yet also fun and exciting. Here's my quick take on some of the basics.
Beware the two warm cups of coffee. Say we're over here, and we're having trouble breaking through to mass-market adoption. And say, they're over there, and they are also having trouble breaking through to mass-market adoption. It's tempting to want to team up. Sometimes that works out, but most times it doesn't.
Determine whether it is chocolate and lobster or chocolate and peanut butter. Many people believe that lobster is very delicious and that chocolate is very delicious. However, they are not delicious together. Sometimes a great company falls in love with another great company, and it seems like it could be a happy marriage. Be very cautious when combining to ensure it'll be a Reese's Peanut Butter Cup and not a chocolate lobster.
Explain the thinking behind stock splits
Usually, the motivation for a stock split is to make this stock more accessible to a broader base of investors. And you can see the opposite. So, Berkshire Hathaway, I have no idea what the price is right now. But the share of Berkshire Hathaway is probably $10,000 or something like that. In contrast, the average cost of a stock on the New York Stock Exchange is probably $40. Some companies do not want retail investors trading in and out of their stock, and they're happy with their stock prices. Most companies want their stock to be broadly applicable and broadly held. If they find that their stock is getting too expensive, there is no impact on existing investors or new ones because it's just one share.
If you manage a division, what's the best way to get access to financial information without stepping on toes?
It depends on the culture. Some companies have cultures where everyone reads how they're performing. If that's not the case, I would go to your finance department and request regular reports.
How can a finance person address the challenge of making information easily digestible to those that need to review it?
You have to think about yourself as a teacher and a coach, more than an enforcer and a monitor. That is an essential frame. Many finance people do not realize how little finance their business leader understands. And many business leaders do not want to spend time with finance because they're afraid of being called out on what they don't know. So you have to think about the tools you have and whether they are intuitive and easy to understand. Then you have to think about the environment you're creating to help teach your business leaders about finance.
Any specific advice for entrepreneurs?
It matters a lot whose money you take. I know from the process of starting my own small company that when you're just starting out it seems like any money is good money. It's not. It pays to be picky and understand what an investor is interested in. Especially in the case of funds. Funds have a life. Often a fund will have a life of maybe five to 10 years. So really do your due diligence on who the investors are, what their overall motivations are, and frankly, what their timing is, and what pressure they may start to feel from their own investors.
I know from the process of starting my own small company that when you're just starting out it seems like any money is good money. It's not. It pays to be picky and understand what an investor is interested in.
Any final tips you'd like to share?
Have very high expectations of what finance can do for you. If you don't have good financial support that gives you insight into the business and helps you develop that intuition, ask for more. Know what good looks like and ask for it because it's a tremendous resource for you.