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Is your accounting department helping you spot the iceberg?

Sunday, March 18th, 2012

Are you beginning to view your accounting department as a cost center full of overhead expense?

Are you not sure what they do all day but know that they seem very busy and often overwhelmed?

If one critical person in the accounting department left, would business continue on without missing a beat?

If these questions make you uneasy– you aren’t alone.

When we talk to many CEOs we hear the same thing: “When it comes to the financials, we don’t know what we don’t know.” That includes what their accounting department does on a day-to-day basis—and what information they should be getting from them.

For many companies the amount of information that the leadership team gets from their accounting departments is minimal, dated and not easy to understand. Not wanting to know the intricacies of the accounting function, many owners blindly trust their accounting staffs, and figure if the tax accountant isn’t complaining too much at year-end, their accounting department is getting by just fine.

But are they? Could they be delivering more, more efficiently and with greater accuracy?

Here are some signs that your accounting department may need an overhaul:

Timing is everything. What would have happened to the Titanic if they knew about the size of the iceberg before they hit it? If you aren’t getting financials from your accounting department within 10 days after month-end, you are in the same situation. By the time you discover an issue 20, 30 or 60 days after the month ends you may find that a small issue last month has snowballed into a serious problem (“iceberg”) and you didn’t see it until it was too late.

Flat financials. So you are getting information from your accounting department, but can you use it? You should be getting real information from your staff– details such as which customers are driving your profits, what product lines are doing well, what is the productivity of your staff and your assets, as well as projections of where you are headed. If you aren’t, you may not see—or be headed directly for– that “iceberg.”

Business growth outpaced the skill set of the staff. Most companies have them—the bookkeeper or staff accountant who has been with the company from inception—who knows every nut and bolt of the business. But now that person is the “CFO.” Sometimes that person can grow into the role—sometimes not. It might be time to take a hard look at the skill set of your staff and get the right help in place to continue the business’s growth.

Busy-ness doesn’t equal good business. When was the last time your accounting department stopped and asked why they do things the way they do? Often times we find manual entry of accounting transactions when they could be automated, re-entry of the same data in multiple systems, and a LOT of unnecessary paper shuffling.

Old technology. Face it, when it comes to investment in IT, the accounting department gets the short end of the stick. There is nothing sexy about an accounting package (unless you are an accountant!) and it certainly doesn’t hold a candle to the fancy CRM systems that often are upgraded before the accounting systems. However, when used wisely, an investment in accounting system upgrades may just improve the efficiency of the staff, give you better information in less time and cost you less over all.

Your accounting department’s main function, beyond just record-keeping for the IRS is to provide you, the owner, with the best springboard for growth—information.

We often get called in to companies when the owner/CEO isn’t getting the information they need, when they need it and in the format that makes the most sense to them. Either the business has hit an “iceberg” or they are trying to avoid one.

How does your accounting department help you “spot the icebergs” in your business and how do they help you course-correct?

Posted in Accounting/Bookkeeping, Cost Cutting, Financial Policies & Procedures, Forecasting, Labor, layoffs, Planning | No Comments »

The empty spot on your bench

Wednesday, May 25th, 2011

Ask any business owner if they ever have enough money or enough people to get the job done and their answer is probably a guffaw and a resounding “NO!”

When you ask them who they need (in a perfect world) you’ll hear they need sales people, operations people and line workers. Rarely do they say they need a Chief Financial Officer (CFO.)

Ask any business owner that has left their accountants’ office during tax time still puzzled on why they owe so much to Uncle Sam or how they could have made so much on paper but don’t see it in the bank. Many accountants can’t answer these questions. A CFO can.

If you are worried about looking foolish in front of a CFO, or are embarrassed that you don’t have a grasp on your numbers, don’t be. You aren’t alone.

If you have a handle on your financials but still find yourself with questions about product line or customer profitability, whether you should pay back your loan or take the money and use it to grow, or why you never seem to have enough cash, you should consult your CFO.

If you believe your CFO is strictly a glorified bean counter, you have found the wrong person for the job. If you think that a CFO is really short for CF-”no”, that is, someone who will shoot down all your plans or ideas, you’ve found the wrong person.

If you are looking for someone to help you map out your growth, “run the numbers” and provide you options backed by analysis, and you naturally turn to your CFO, you know you have the right member on the team.

But most businesses don’t have that team member in place. There is an empty, yet critical, spot on their bench. It comes down to one change in mindset on the part of the business owner:

Hiring a CFO isn’t an expense, it’s a growth strategy.

A CFO can provide you with the best springboard for growth: information.

Information can be in the form of financial analysis and trends or forward-looking projections. It can be a scenario analysis (“if I do X, then my profit could be Y”) or a post-mortem (“why did this job run over budget?”) A CFO with good business sense can take your operational and financial data to give you a picture of the effectiveness of your daily operations. That’s pretty powerful stuff.

So, you can muddle along and find out what works through gut instincts or trial and error. You can hire another sales person or line worker and you can grow in increments. Or you can fill that empty spot on your bench with a CFO, even on a part-time or consulting basis, and grow exponentially. You just need to change your mindset.

Posted in Accounting/Bookkeeping, Business Model, Cash Flow, Cost Cutting, Financial Policies & Procedures, Forecasting, Increase revenue, Labor, Planning, Pricing, Recession Busters | 1 Comment »

An alternative to “Off with their heads!”

Tuesday, May 17th, 2011

When businesses downsize or look for cost savings the first place they look is their staff. Employees are expensive—you have to pay them a salary, benefits, “house” them for the work day, and give them whatever equipment they need to complete their work. Naturally when it comes to cutting costs, business owners see reducing these “people” costs as a quick way to save money.

Here’s a twist. Before you start thinking about headcount reductions, look to your employees for costs savings by ASKING them for their opinion. I know—it probably isn’t comfortable to admit that you need to save money if the business isn’t doing well. You also have to deal with the mind-racing and jumping to conclusions of inevitable layoffs. There is a lot to manage when you go this route.

As the business owner, you may need to shift from thinking you’re the only one who knows how to run the business, to being open to input from the lowest levels within your organization. When GE went through this process of seeking out cost saving ideas from deep within the organization, a line worker in one of its plants commented that for 25 years GE had his hands, all the while they could have had his brain as well—for nothing. Pretty powerful.

So do yourself (and your company) a favor—ask. Ask your employees how you can save money, how you can improve operations, how to grow the business. Remember those closest to the work know it best. They know a lot more than you give them credit for.

A critical thing with opening yourself up for ideas is also being open to act on them. Here are a couple of ways to encourage ideas:

Share the savings: If employees think that cost savings are going to wind up in your pocket, and yours alone, they’d be less likely to volunteer ideas. Give them a portion of the savings and recognize them in front of your peers or reward the best ideas with dinner for two paid by you.

Have Belly-Flop awards. Every idea you get may not be a good one, so have some fun with it without embarrassing the person who made the suggestion. If you pursue an idea and it doesn’t work out, award it the “Belly-Flop” award and analyze what went wrong, and learn from it. The main point here is you want to reward the risk that person took by suggesting something.

Watch the eye-rolling: You know what I mean, whether literally or figuratively, there is always one or more employees that roll their eyes as you announce your next big initiative or idea. Before you dismiss them as small-minded, take a moment to find out what their qualms are. In their response may be some warning signs of a project about to fail—or cost too much.

So take time in your day, week or month to ask, listen and do. If you show you are open to ideas from the ranks– and take them seriously–more will come, and so will your solution for turning around your business.

Posted in Cost Cutting, Labor, Recession Busters | 1 Comment »

Brain drain- when a critical employee leaves

Thursday, May 12th, 2011

There is a lot to be said about a star employee—one that holds the company together—the go-to guy or gal that helps run your company smoothly. They may have a big role in your company or they may just be the billing clerk who gets the invoices out on time and accurately. You take them for granted—until they are gone.

By “gone” I mean any number of ways: They leave your company completely, they get sick and are unable to work or they just “check out.”

Most businesses have some backup plans for data—redundant systems, servers, backups to the cloud. But I am surprised that most companies don’t have a backup for their most critical information—the information that resides in the heads of its employees.

Think about how much knowledge walks out your door every day. How would your business be affected if a few key people didn’t come back?

What if that employee is you?

In small businesses there is little room in the budget for redundant employees but there is NO room for the disruption that ensues when a critical employee is absent.

You as the owner need to come up with a backup plan—otherwise you will find yourself constantly distracted and firefighting while at the same time finding someone to replace him or her. It doesn’t have to be a massive undertaking—you probably already do it for when employees go on vacation.

Think of it as extended vacation planning. Here’s how:

Make upkeep of standard operating procedures part of everyone’s job. These don’t have to be long, formal documents but they should entail critical pieces of information about standard policies and procedures– from how much material you order to where all the passwords are for the bank accounts, to the way that certain customers like their invoices processed.

Develop a pipeline of talent. I’ve worked in organizations that get this right—so when there is a vacancy it’s no sweat, they just move up the next person they were grooming for the position. By grooming, that means ensuring the understudy has had the experiences and some of the training the critical employee has while allowing him or her to pinch-hit during vacations or business trips. This will ensure a smoother transition when the time comes.

Cross-train. This may be the easiest to do but the hardest to find the time to do too. The best way to do this is by allowing people to work on projects together, paired with people with different skills or responsibilities to allow each other to see what the other is doing .

Shuffle the deck. Have one person who is doing all of your critical activities? Maybe you need to shuffle the deck and allocate different critical responsibilities to a few different people. This way if one person leaves business doesn’t come to a halt. Spend some time and develop your A-list of critical tasks and make sure you don’t have all your eggs in one basket—with only one person doing them.

It’s time you had a backup plan for the rest of your data—the data that walks out your door every evening. Develop your backup plans now and avoid the brain drain when a critical employee leaves.

Posted in Labor, Planning | No Comments »

How well have you figured out the 4Ms of business?

Sunday, January 9th, 2011

For any business to be successful, they need to have a good plan looking at the 4Ms of business:

Money. Do you have enough money so that your business is paying its own bills? Or does the owner or investors need to sink their funds into the business to keep it afloat? If you are a startup this is OK and expected—there is a lot of investment required before you make your first sale and beyond. However, for established businesses this may be a warning sign of that one of the other “Ms” isn’t working.
Manpower. Do you have the right number of people doing the right amount of work? Payroll is typically one of the largest expenses for businesses, but we are often amazed how often businesses get this wrong. Too many high-paid people doing low-level work. Inefficiencies and dead wood. Star employees with untapped talent. As Jim Collins says in his book Good to Great, “get the right people on the bus, the wrong people off the bus, and the right people in the right seats.” Get the Manpower equation right and watch your business grow.
Marketing. Fancy brochures? Great. Website with Flash? Wonderful. Nobody buying what you are selling? That’s a problem. Beyond the fancy collateral, how often have you stopped to find out why customers buy from you? What is the value you bring to your customers and how much are they willing to pay for it? Have you defined who is your ideal client and how will you reach them?
Making it Happen. This is your operating plan. Can you deliver what you said you can and how much will it cost to do so? Will there be enough cash to pay the bills? If not, go back to #1 and repeat. Unfulfilled customer orders, bad customer service, poor quality all can drive a customer away. Great customer service is wonderful, but if it costs you more to deliver your product or service than the price you charge that can lead to serious problems.

The rule for the 4Ms is review, revise and repeat. As you kick off the new year, how are you planning for the 4Ms?

Posted in Business Model, Cash Flow, Labor, Planning, Pricing | 2 Comments »

Unionization– easier with EFCA

Friday, February 27th, 2009

Buried in all of the financial news is a new law that could have tremendous negative impact on small business owners nationwide. It is called the Employee Free Choice Act (EFCA), and it would allow workers to unionize very easily and relatively quickly if passed.

I recently attended a seminar by Jackson Lewis,a law firm that exclusively represents management in workplace matters, about EFCA and its impact on businesses. Below are some highlights from their presentation.

Let’s face it—many companies are struggling to reduce costs, and often “people costs” are a big source of savings. Employees across the country are dealing with reduced pay, mandatory furloughs and layoffs. To combat this uncertainty, many are looking to unionization to provide protection and job security, and EFCA allows them to do so more easily.

Encouraged watching United Auto Workers Union’s Ron Gettelfinger fighting for “fair wages” and representing the laborers during the auto bailout hearings, employees may wish they had someone to represent them in the workplace.

Business owners, on the other hand, see the damage unions have done to the auto industry. American automakers simply cannot produce a competitive product because union wages and expenses drive up costs.

Unions are not just for manufacturing companies. In fact, union leaders have declared that “Rebuilding our strength must include fast-growing, nonunion sectors,” which include retail, professional services and healthcare– all jobs that cannot move overseas.

So why is this piece of legislation a big issue?

The Employee Free Choice Act (EFCA) removes critical pieces of the current-day unionization process, and could potentially allow unions to take a swift and strong foothold in any business with multiple employees.

The current process (below) relies on an initial support gathering, filing a petition, and a 6-week period where the company can plead its case with employees to discourage unionization before the secret ballot election is held.

EFCA, on the other hand, only requires a majority of employees in a bargaining unit to sign cards saying they want to unionize before the union is certified as the workers’ representative and negotiations must begin. (“Bargaining units” vary by workplace but includes employees who have a community of interest.) Unless the business acts proactively, the business does not have an opportunity to present its case.

If a majority of cards are signed, according to the law, you only have 120 days to negotiate a first contract with the union before mandatory arbitration begins. First contracts often take much longer than 120 days to negotiate, and with mandatory arbitration, some unions may believe they will fare better at the hands of a mediator. The arbitrator can determine everything from pay rates to disciplinary procedures. In addition, EFCA imposes hefty fines if the employer is found to have wrongly dismissed an employee due to unionization efforts.

So what can you do?

As Jackson Lewis put it, “Define yourself before the union defines you.”

Here are some things that they suggest you do now before unions get a foothold in your business.

Start the discussion with employees on why unionization is unnecessary for your employees, your customers, your business and the community at large, and why speaking directly with employees is your preferred method of resolving issues.

Get your HR house in order. Make sure disciplinary policies and union solicitation/distribution policies are in place. Remember– any action you take after the unionization process begins may open you up for penalties.

Look at the way your work groups are organized. If a group of employees do a certain task, say maintenance work, that small group can organize into a union simply if a majority of the group signs cards. If you think you are at risk because a small group of your workers could constitute an appropriate bargaining unit, consider modifying your work assignments. This may help you expand the size of the unit, making it more difficult for unions to organize your workers.

Bills are passing through Congress with alarming speed and there is little time to waste to be prepared for this one. For further information and additional steps you can take to prevent unionization in your business, you can contact Jim McDonnell (mcdonnej@jacksonlewis.com) or James LaRocca (laroccaj@jacksonlewis.com).

Posted in Labor | No Comments »

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