Nortel Re-Energized?

In the July 30, 2007 Toronto Globe and Mail Report on Business, Mike Zafirovski, the CEO of Nortel Networks Corp, was asked, "What was the old Nortel's big mistake?" He responded:

Nortel used to have some of the best processes in the world . . . . A lot of Nortel's old processes were thrown away. . . . Many acquisitions were made and the systems were not integrated. Lots of accounting issues came out of manual processes on top of manual processes.

It's true: having an excellent accounting system will not create a successful company, but a bad system can sure turn an excellent company into a failure! Nortel is an extreme example, but ask yourself if you could make better decisions if you received better financial and operational reports faster. That's what re-energizing a system is all about.

Read the whole article here.

Energizing your GL

Signs your GL needs re-energizing:

1. You have accounts with the letter A after them, e.g. 1200A (There was no room at the inn!),
2. In order to prepare certain reports, someone has to analyze transactions in an account line by line (as if they don't have better things to do),
3. When creating financial statements you have to pick an account here and an acount there (cherry picking without the pie at the end), and
   
4. Transactions are posted to "Other" because there is no specific place for them to go.

Do you feel stuck with a system that can't be changed? Consider a re-implementation of your existing software. We download all the transactions you need, reformat them given your current needs and upload them into a new company. Then:

1. Not only will we get rid of the "A" accounts, but we'll also have space for new ones,
2. The chart of accounts will be detailed enough to handle all your reports,
3. The accounts will be in logical places, making it easy to create new reports, and
4. Every transaction will have a home.

How does that sound?

What Do You Use?

Remember the old saying that the shoemaker's kids go barefoot? I was reminded of that recently when reviewing my own accounting system. When I first selected it, in 1994, I narrowed the choice down to Quickbooks and Mind Your Own Business (MYOB). I chose MYOB because it had both a Mac and a PC version and I was a bit of a MacHead back in those days.

MYOB could continue to record my revenues and pay my bills, but I started thinking about hiring my son to do some of the mailings, particularly when I'm on the road. I'm currently looking at Net Suite because it is:

1. Accessible via the web,
2. Bundled with a web site interface and CRM, and
3. Aimed at small business and the mid market.

I can use it for myself and offer it as an alternative to Microsoft Dynamics GP and NAV (formerly Great Plains and Navision). I'll let you know what happens.

How Things Look

In a restaurant, good food is what's important to me. I don't care what the place looks like or how the food's arranged on the plate as long as it is a quality meal. My wife, on the other hand, says, "Presentation is half the meal." She wants the pressed linen, the flowers on the table, and the waiter to be attentive. If you're presenting financial statements to the Board of Directors, you should listen to my wife.

Case in point: I was working with a not for profit trade association to re-energize their accounting system. The accountant said that the Board was always criticizing the amount that was spent on consultants. We looked at the financial statements and there it was: a single line called "Consulting" with a large number beside it.

"It's so unfair," the accountant continued. "The Board knows that most of that expense is for the speakers we bring in to do seminars and their cost is covered by participant fees."

"Then let's get the financial statements to tell the same story," I said.

So we separated Participant Fees from Conference Revenues and Speaker Costs from Consulting (as well as the other costs of running seminars) and all of a sudden the cost of consultants looked more reasonable. It was also clear that the association was earning a small, but important amount from its seminars.

The other important change we made was to synchronize the financial statement formats. Previously the President and Treasurer had a detailed income statement and the Board members had summary statements. But the formats were different, making it difficult for the Treasurer to answer questions quickly. With the new format, the detailed statements had the same subtotals as the summary ones, so questions could be answered with more confidence.

My wife is trying very hard not to say, "I told you so."

Not For Profit Red Flags

When I was considering a Controller's position with a charity, a friend warned me that it would limit my career. "Once you move to a charity, you can never go back to a real business," he said.

The Not For Profit (NFP) sector used to be viewed as a backwater, not serious business. The reality is the opposite, particularly from an accounting perspective. Charities and NFP systems have unique challenges. You ignore these red flags at your peril!

First of all, every dollar received by an NFP needs to have a flag attached to it so you can say what happened to that particular dollar. Whether it is a donation, a government grant or membership dues, the person who gave the dollar wants to know what happened to it. Contrast that with your typical business, where once the product or service has been delivered, the owners are free to do whatever they want with the cash.

Secondly, actually delivering a zero bottom line where revenues consistently equal expenses requires smart financial planning. The expenses can be relatively easy to forecast, but revenue is often tricky, particularly when a large portion may come on December 31 when many donors scramble to make their contributions before the year end deadline.

Thirdly, many NFP's are a microcosm of larger Canadian issues, such as west vs. east, rural vs. urban, English vs. French, individual vs. large corporation, and you have to ensure that all of the constituents are fairly represented. Financial reporting can be critical in demonstrating that the organization's resources are being deployed in an even handed manner.

If you understand the red flags, however, working for an NFP can be a rewarding career highlight.

Great Plains Announces Workflow

Great News: In version 10 of Microsoft Dynamics GP (formerly Great Plains), the electronic approval of transactions has been significantly expanded. To quote from the What's New documentation:

The workflow approval process expands existing workflow functionality provided in both Microsoft Dynamics GP and Microsoft Office SharePoint Server. This feature provides a consistent, comprehensive solution to the approval of purchases, credit limit overrides, sales quotes, and batch posting for payables, receivables and general ledger transactions. Integration with Microsoft Office SharePoint Server helps to ensure an efficient, centralized administration point, and allows the use of user roles to help you efficiently manage security of the approval process. The Workflow feature allows users to approve business processes, even if they’re not Microsoft Dynamics GP users.

So you can now set up a Purchase Order (for example) and have the system send it to a supervisor for approval or, if it exceeds the supervisor's approval level, have it go to both the supervisor and the vice-president.

Passionate Employees

The president of a Halifax-based company with 17 employees writes to ask PROFIT-Xtra readers:

"My company is my baby. I'm very passionate about it, maybe even obsessed with it. It bugs me that most of my employees treat their jobs as just a job. Although they do adequate work, I don't see any passion in them. Did I hire the wrong people or should I be doing something specific to get them as excited as I am about our products and services and the future possibilities of the firm?"

My answer:

Some of the obvious ways to give employees a chance to be passionate about their jobs are employee share ownership and profit sharing plans. The Controller at a client of mine told me about how his company put in a profit sharing plan. It took a couple of years for the plan to kick in, but after they had a good year and the staff received the equivalent of 2 month’s wages in a single payment, he said the attitude in the company changed completely. All of a sudden he was getting support for his cost cutting recommendations, particularly when he reminded staff that it would go to their bonus.

Another way was suggested in a talk by Sam Allred at the Upstream Academy. He recommended that employee pay be more entrepreneurial, by being broken down into three tiers:

1. A low base salary that you get just for showing up and doing your basic job,
2. A bonus for making budget, possibly shared among a group, and, most importantly for developing passion,
3. A significant bonus for going beyond budget.

In that model the base salary typically doesn’t change. As employees gain experience, the top tiers grow. At the end of the meeting I asked Sam how that model would apply to administrative workers who typically don’t have direct budget responsibility. He thought about that for a moment and said that they play a support role, so if the person or department they support makes or exceeds their budget, they should get a piece of that as well.

At the end of the day, however, money only goes so far. Ask yourself whether you are communicating the passion you feel about your business to your employees. I once worked in a little fourteen person consulting firm. One of the owners had this dream about being recognized by the company whose software we represented by being invited into the President’s Club. It was a huge, audacious goal for a firm our size, but his enthusiasm was infectious. We were up against much larger companies from all over North America. The owner celebrated every sale. He talked about the goal at every staff meeting. He charted progress. He made sure that he dealt with any obstacles people experienced. It really felt like we were pulling together as a team. That was a fantastic time and yes, after a LOT of hard work, we finally made it.

Update: Profit Magazine chose to publish this entry here.