Accounting Crisis Response

Major David Ebel, of the Escondido Salvation Army, is one of the moderators of the Emergency and Disaster Responders Support web site.  I spoke to him about training as a volunteer to help people in crisis.

"You may think of fires and earthquakes when you talk about disaster relief, but if you were in Escondido, I could use your accounting skills right now," he said.  Ebel went on to describe the financial challenges some of the people he serves face.  "If you could help people figure out how to live on $22,000 per year, you would be making a big contribution to their quality of life."

Ebel continued, "Some of the people I work with have never seen a raw potato.  They don't realize that they can buy five pounds of potatoes for the cost of two boxes of processed potato flakes.  They have never made mashed potatoes from scratch in their life."

In the financial area, I see a similar lack of exposure to the basics.  In my grandfather's day, if a young couple came to the bank for a mortgage they couldn't afford, the loan officer would quietly explain the situation to them and refuse to advance the money.  Fast forward to today, where the bank employee will help you minimize your payment by reducing the down payment and extending the amortization period from 20 years to 35 years.  The problem is, they don't tell you the consequences of those decisions.

Let's say you have a $100,000 20 year mortgage at 5%.  Over the course of the mortgage, you will pay $57,710 in interest, at $657 per month.  If you extend that mortgage to 35 years, then you will pay $110,600 in interest (more than the original mortgage!), at $501 per month.  That extra $150 per month makes a huge difference spread over 20 years.  Here's the part they don't tell you:  if you get the 20 year mortgage when you're 20, then it's almost paid off at the time when your children may need college tuition or are considering getting married, etc.  If you go for the 35 year option, then you haven't paid off the house until you're 55 years old!  Who needs that kind of stone around their neck?!

The point of all this is simply that when budgeting for mortgage payments, the right question to ask is "What's the MAXIMUM I can pay?"  As odd as it sounds, reducing mortgage payments makes mortgages LESS affordable, not more.

The sub-prime mess is still with us.  People have been badly wounded and those wounds are no less real for being financial.  Grab your spreadsheets and get out there!  If anyone reading this blog knows of ways to help counsel people or places to volunteer, please note them in the comments.

2 > 2 X 1 (Accounting Can Be Lonely)

Accounting can be lonely.  So much of what we do is by ourselves.  I was at a the finance committee meeting of a charity last week.  We were discussing how much money the charity needs to have on hand as a contingency fund.  We decided that three month's worth of expenses was a realistic, practical amount.  After the discussion, the Treasurer thanked us.  He said he and the other management staff had wrestled with the question, but he felt better having the chance to work with other accountants.

I have to agree.  Having another professional accountant to challenge your thinking and check your work is invaluable.  The work of two together is worth more than the two individuals.  Sometimes you get that kind of discussion with your auditor, but I find a peer's advice so much more practical and useful.  It also helps that I'm usually not paying my peer by the hour!

Earlier this week I attended a meeting of an industry group.  They bring together representatives from the various organizations in our industry.  This, too, gives me a chance to check in with my peers.  I can stay up to date with them, check our performance against theirs, find out what issues they face and what opportunities there are to work together.

So, this is just a little reminder:  if you're feeling alone in your work, consider volunteering on the finance committee of a charity or getting involved in your industry association.  You'll be glad you did.

Accountants Care

Karen was the accountant for a client of mine. She had twenty years of experience, starting as the receptionist and working her way up to become an indispensable part of the team. She was quiet and dependable, keeping the invoicing and payroll systems going through changes in legislation, system problems and people’s comings and goings. That is, unless you were trying to get away with anything. If a salesperson tried to get some of next month’s sales recorded in this month for bonus purposes, she had a way of making a grown man feel like a little boy caught with his fingers in the cookie jar. I don’t think she ever put the company before her children and husband, but it came a close second.

Accountants care about where they work. In my experience, they take their jobs personally. If anything goes wrong with the company, they feel it, even if it is something completely out of their control. At the same time, they are the company’s conscience, asking the difficult questions about why the budget was not met or why so much money was spent. In good times, accountants are invisible. In bad times, nobody wants to talk to us.

Last week, I attended a meeting with 15 volunteer treasurers from local churches. It was a three-hour meeting about such things as whether people paid by the church (e.g. musicians, choir directors, replacement ministers, etc.) should be treated as employees or contractors for income tax purposes. We also discussed reporting requirements for charities, budgeting, the disposal of church property and other technical matters. The treasurers then had the responsibility of going back to their churches, implementing any necessary changes and explaining the results to their boards.

As I looked around the table, I saw a lot of caring people. I remembered when my mother was elected treasurer of a volunteer group. The requirements were much simpler back then, but I remember her and my father, who actually had a business degree, spending a week of evenings wading through the mess of what had been done previously. We don’t thank volunteers like these nearly enough.

Help a Young Career

"Here is what you should know if you want to get ahead . . . "

Did anyone ever take you aside and say those words to you? Me neither. Yet it used to happen all the time, back when people stayed in one company long enough that there was time to plan for the future. The older executive would take the new recruit aside and teach them the subjects that they never got in school: how to work within the system, how to form alliances, how to help one another other climb the corporate ladder.

So, what would you advise the bright young professional accountant who has just passed the exams?

I would advise them to join the Board of Directors of a charity. Why? It's not just that there is a crying need for professional accounting in the not-for-profit sector. It's also a fast way to get practical experience working with a Board of Directors. Charity Boards are welcoming. Board members have the patience to help you along. But you need to be strategic:

1. Choose a charity you believe in. Then it won't feel like work.
2. As a professional accountant, they will want you to be Treasurer. Accept the position for one term (usually 2 or 3 years) then actively recruit a replacement so you can move to another position and learn new skills.
3. Make sure you donate money as well as time to the cause. It increases your credibility.
4. Keep moving up, recruiting a replacement as you go. Always ensure you bring fresh blood into the organization.
5. Focus on how you can help others and keep relationships active. That's called networking.

Learning New Skills

The broader your skills, the farther you can go in your career. Professional accounting skills are a great base, but if you can add revenue generating experience, such as fundraising or grant proposals, you have a dynamite combination.

Networking

Networking is more than just passing your business card around at an event. It's about establishing and maintaining relationships. The best way to build a relationship is to help someone. The second best way is to ask for someone's help. Since there's no way to predict who will be able to help you in future, try to be helpful to a wide variety of people and see what emerges.

Dive In!

Some Board members take a passive role. They read what they are sent and respond. Others take a more active role. They research the organization's needs. They participate in planning. They take an active role in furthering the organization's objectives. That's the kind of Director you need to be.

Rewards

Charitable work is often called its own reward. That's true, but there is a practical side as well. The issues you face on a charity Board, such as prioritizing resources, dealing with personality conflicts, wading through government filing requirements and forecasting the political future, are exactly the same issues you face on the Board of a for-profit corporation.

So, go get 'em, Tiger! And remember to mention me in your memoirs.

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.