Does your company have adequate contractual protections? Although this is the area that is the purview of your attorneys, it’s important that someone within your organization understands where the contractual risks are and knows when to engage your attorneys.
There are many areas where it’s important to have contractual protection, and the exact areas depend upon the nature of your business. Common areas include customer agreements, lease agreements, loan agreements, employment agreements, vendor agreements, licensing agreements, and agreements with your investors.
It’s the job of the CFO to be able to read and understand these agreements, especially from a financial prospective. Even with the help of an attorney, the attorney will often look to the CFO for assurances that the financial aspects make sense and are being met. Additionally, the CFO must also understand if they are over their head in relation to legal issues, and when they need to engage the attorney.
Some of these agreements contain triggers that are based on financial results. For example, a loan agreement may contain a provision that the loan will be called by the bank if certain financial ratios are not met. Common examples of such ratios include the quick ratio, the current ratio, and the debt to equity ratio.
Often the CFO is called upon to assist in the financial structure of a contractual agreement. For example, if new space is being leased, can the tenant improvements be financed by the lessor and factored into the lease? If so, how is that increase in rent to be determined, and how should it be accounted for in the books?
Part of the job of the CFO is to have a working relationship with your attorneys. To learn more, visit our website at www.CfoOutsource.com.