Urgent vs. Important

Accounting is all about deadlines.  From the weekly cheque run to the monthly management reports, the quarterly shareholder reporting and the annual tax return, there is always something that has to be done NOW!

At the same time, there are those important initiatives that have no specific deadline but that will significantly impact the running of the department, like systems upgrades, staff development and departmental strategic planning.

Two things are clear:  you can’t manage what you can’t measure and it won’t happen unless you make time for it.

Measuring Success

When implementing accounting systems, I ask for an idea of transaction volumes:  how many accounts payable invoices are processed in a month, how many journal entries, etc.  Often it takes some digging to get the answers to those questions.  Controllers often don’t know how many transactions are being put into the system or, more importantly, how many entries one person can be expected to be able to do in a day.  Accounting managers often have a sense that some staff members are busier than others, but no hard statistics to back up their impressions.  Yet, this information can often be easily obtained.

Accounting systems usually tag each entry with some code for the person who created the transaction, as well as the date the entry was made, so you can create a report that summarizes the number of transactions entered by each person.  When I did this exercise for one company, some useful information resulted.  The report confirmed what the Controller already knew about how slow the summers were, but it also gave him some reasons to investigate the performance of the Purchasing staff.

When he found out the reason it took so long to create purchase orders was the amount of time they had to put in chasing department managers for their signatures, he decided to go ahead with the workflow software he had been considering.

Making Time

A hint about making time for important initiatives:  delegate!  Make it part of everyone’s job description that in addition to the regular routine, each member has a special project they are responsible for.  Emphasize how taking on this responsibility will enhance their career and that you will work with them to help them find ways to make time for the new project.  For example at one company, I knew that we were wasting time photocopying each cheque we received and that our payment encoding scanner was on its last legs, so I asked for a volunteer to research the latest technology.  An accounts payable clerk who loved technology offered to do it.  He did a more thorough job than I would have had time for and he enjoyed the challenge.

How do you make time for important initiatives in the middle of all of your urgent deadlines?

Habits of Successful Accountants #5 – Upgrading

Personal professional development is very important for accountants, but have you noticed how often the accounting system languishes, still at the version that was installed years ago?  As an implementation consultant, I would talk to clients about features they were missing because they were on an old version of the software.  The answer was often that they didn’t have the budget for an upgrade.

Budgeting For Success

Finding the money to invest in your system can be problematic, particularly in these days of economic uncertainty.  At the same time, it is often an excuse.  There’s no money in the budget for system upgrades because nobody budgeted for a system upgrade.  It can turn into a vicious circle!

Yes, a complete system upgrade can be expensive, but who says you have to take on everything at once?

Making a List

Remember back to when you installed your current accounting system.  What features made you decide on the one you chose?  What cool stuff were you looking forward to?  Chances are, the cool stuff never got fully implemented.  Why?  Because of the time and expense involved in just getting the basic system going.  Accounting systems are complex and the process of converting the data from an old system to a new one often takes a lot longer than expected.  As the deadline to go live approaches, optional features are deferred so that the team can focus on the basics.  And the cool stuff is often optional.  The sad thing is that the deferred features are often never implemented.

So, make yourself a little list of what you want in your system.  It doesn’t have to be all accounting software.  If your accounting department is like many of the ones I see, it can get pretty cramped.  Imagine how spacious it would be if half of the filing cabinets were removed and the paper scanned instead of filed.

New Year’s Resolution

What about adding this to your new year’s resolutions?  “I will improve my system every year.”  Accounting software packages tend to have at least one major upgrade per year, and they encourage their customers to stay on the current version.  What we used to advise clients was to upgrade every other year, unless there was a feature in the new version that they particularly liked.  This kept them reasonably up to date at a reasonable cost.  What I would add to that advice is to do the next item on your list in the years that you don’t do a software upgrade.  That way, you are always getting better!

Reprinted with the kind permission of Idatix Inc:  http://www.idatix.com/insider-perspective-habits-of-very-successful-accountants-upgrading-annually/

Swimming With Sharks 1

As a small manufacturer, getting your first order from a giant company like Walmart or Sears can be a dream come true.  But that dream can turn into a nightmare if you don’t have the right systems in place.

I worked with a company that landed a contract with an international department store chain.  One month’s order from them involved more of my client’s product than they had sold in the whole previous year.  It was a cause for celebration and the sales team threw a party.

Then the realities of all the logistical requirements hit home.  All of the skids had to include an RFID tag (radio frequency identification) to identify the contents of the skid to the department store’s computer system.  The truck had to show up at the receiving dock at exactly the right time.  All of the shipping documentation had to be sent electronically (by EDI – Electronic Data Interchange).  If anything went wrong, the department store would reduce its payment to my client by a pre-set penalty.

That may not sound like much.  Just a few extra steps with each shipment, right?  Wrong.  Another part of the agreement had the six different ways the company forecasts demand and replenishes stock.  They want to keep the minimum quantity on hand and avoid out of stock situations, meaning that suppliers have to be on their toes and respond immediately to new orders.

If my client had had a full featured ERP (Enterprise Resource Planning) system like Oracle or SAP, all of this would have been routine, but they were just a small operation.  So we modified Microsoft Dynamics GP to create special reports that could be downloaded from the accounting system and made a big list in Excel for the staff to follow.  But it would have been so much better, if the client could have had a workflow system that would have sent email reminders to all of the staff about what steps they had to follow for each shipment.

So, let’s stand back a little and look at the best strategy for your systems if you are a medium sized company swimming with sharks.  You have your toe in the door, but have no way of knowing whether this is a one-shot deal or the start of something big.  In the long run, you would like to be able to ramp up your sales, production and systems so that you move up, but in the short run, that strategy is time consuming and expensive.  A good starting point is to upgrade one piece at a time, making sure that anything new you add will work to meet the current demand AND grow with you as you upgrade.  In this case, a work flow system would keep the staff on top of the vendor requirements, as well as supporting the company’s operations regardless of what the future holds.

Reposted with the kind permission of iDatix:  http://www.idatix.com/insider-perspective-swimming-with-sharks-what-to-do-when-dealing-with-large-retailers/

Budgeting Blues

The Division Manager looked at me.  “Don’t ask me why we didn’t meet budget.  Those budget numbers aren’t mine.  They’re way too high.  I never agreed to that.”  If you are a financial analyst, that quote might be very familiar to you.  It should be so simple, right?  The division budgeted $X million in sales.  The year is half over, so they should have reached 50% of $X million, but they’re actually less than that.  All you want is a reasonable explanation.  Instead, you get an argument about the budget.

Sometimes, it’s a stalling tactic, but sometimes the person really doesn’t remember or doesn’t know where the budget numbers came from.  Budgeting is more of an art than a science.  In theory it’s easy.  Every division does some crystal ball gazing and submits their best forecast for the coming year.  The numbers are assembled for the whole company and after a negotiation about who gets what share of the available resources, the budget is set.

In reality, it can get a lot more complicated.  The negotiations can go back and forth.  Numbers get adjusted.  To understand the final number, you have to understand the history.  The problem with spreadsheets is that when you change a cell, whatever was there before is lost.  So there may be nothing to tell you that the final sales number was increased due to a sales promotion that actually never happened.

Some budgeting systems solve this by allowing you to enter a series of budget adjustments instead of changing the cells directly, but if you’re like most of us, still using spreadsheets, having a system that locks in previous versions of a spreadsheet can save you a lot of hassle later on.  If you have locked in versions of the budget, not only will you understand what’s in the numbers, you’ll be able to prove it.

Scaling the Document Mountain

We were standing in “The Archives”, looking at twelve-foot high shelves mounted on rollers so that they could be crammed together.  Each one was filled with row after row of filing boxes.  I had just asked the silly question of whether all of the documents could be scanned to save money on storage.  The Archivist informed me that scanning to Archive Standards would take 37 person-years.  Now, most people aren’t interested in preserving historical documents for future generations of scholars.  All we really want is access to the information on the documents.  Still, staring at row after row of filing cabinets can give you that unpleasant sinking feeling in your stomach.

When you’re faced with a mountain of documents, what do you do?  Here are five practical suggestions:

1. Clean House First – Some documents are more valuable than others.  If there’s anything that can be easily weeded out, start there.  Make sure you have a document retention / destruction policy.
2. Draw a Line in the Sand – Start now.  Maybe scanning all the history is too much work or too expensive right now.  You can still contain the problem by setting a date after which all documentation will be scanned.  Later, as you get to know the system, you can selectively go back into history and scan the most important documents.
3. Different Documents Different Strategies – Some documents are easier than others.  If you have standard forms, for example, where the same information appears in the same place, scanning can actually capture important information, such as company names, as text, as well as creating an image of the document.  That way, you can build a database as well as a library of scanned images.  You may also find that some documents don’t need to be scanned at all because you already have electronic versions that can be transferred, instead of being printed and scanned.
4. Pick the Low Hanging Fruit – Some departments’ documents are more easily scanned than others.  Accounting is usually well organized, with documents filed for later retrieval and an annual transfer of old documents to storage.  Start there and gain some experience.  Don’t take on the whole challenge at once.
5. Look for Golden Opportunities – You may actually get the most bang for your buck from the creative side of the business, which may have the most chaotic filing system.  Being able to browse through work done for previous customers can be a fertile source of new ideas for designers and salespeople.

Bottom line:  get someone who knows scanning in to take a look at your situation.  This is a growing area with lots of new ideas and fresh approaches.  When someone says, “It can’t be done,” don’t just take their word.  Do the research.

Workflow Software

Downsizing, right-sizing, layoff, restructuring, whatever word you use, accounting departments have been consistently trimming staff for decades.  Computers are taking on more and more of the daily routine.  While this is good news for cost control and efficiency, it’s not so good for accounting controls and segregation of duties.  Where you used to be able to separate incompatible functions between different staff, now there may now be only one person available.

The Controls Environment – The Sarbanes-Oxely Act (affectionately known as “SOX”) enacted in 2002, was legislation designed to reassure the investing public in the integrity of financial statements after the accounting scandals of Enron, Tyco and WorldCom.  It imposes some strict requirements on not just the accuracy of financial statements but also the control systems behind them.  Those requirements aren’t going away any time soon.  In fact, the US Bureau of Labour Statistics has this to say about accounting clerical positions:

“As the number of organizations increases and financial regulations become stricter, there will be greater demand for these workers to maintain books and provide accounting services.”  (Source:  http://www.bls.gov/ooh/office-and-administrative-support/bookkeeping-accounting-and-auditing-clerks.htm)

So, not only are accounting departments being downsized, but they are also expected to meet increasingly strict requirements.  What are companies to do?

The answer may surprise you.  Most people don’t think you can automate accounting controls, but a computer approach called “workflow” can stop employees from shortcutting the internal control system and provide an evidence based audit trail that will stand up to outside scrutiny.  And the good thing is that it can be added to an existing system even if that system does not have the feature built in!

The Paper Trail – The basic building block of accounting control is the approved document.  Whether it is a supplier invoice, a customer purchase order or a government document, it follows a pre-set trail through the company’s approval process, depending on how much it is and what it is for.  For example, the purchasing manager may only approve invoices from preauthorized vendors under a certain dollar amount.  Anything from a new vendor or above his limit requires further authorization from a more senior corporate officer.  Workflow systems work on scanned images of the document and email.  The company’s rules are loaded into the software, so it can check if the document is from an approved supplier, as well as knowing the authorization of all of the staff.  This automation saves a lot of accounting staff time because they don’t even see the document until it has been properly approved.  No more squinting at illegible scrawls wondering if that’s the new division manager’s signature or turning the documents back because they aren’t approved.  The computer takes care of all that.

“He’s in Europe” – One of my first jobs in accounting was for a company with a head office in the United Kingdom.  The Vice President of Finance would let us know when he was going overseas and there would be a scramble to be sure that he had seen everything that needed to be approved.  And when he came back, there would be a stack of papers on his desk for approval.  No large transactions could be processed while he was away.  Because workflow is based on scanned images, they can be approved via a computer or even a smart phone at any time, anywhere in the world.  Now, isn’t that nicer than coming home to a stack of papers in your in-box?

What Keeps You Up at Night? Accounts Payable

Early in my consulting career, an Accounts Payable (AP) Supervisor set me straight.  She told me that AP is all about routine.  Expense reimbursements go out on Monday.  Domestic vendors on Tuesday.  International on Wednesday.  If this new system that I was training them on was going to work, it had to make it easier for them to keep on track.   That changed my view about AP.  It’s not just AR with the credits and debits reversed.  If there’s one thing that keeps an AP Supervisor up at night, it’s the sudden question that forces them to drop everything and go searching through the files, because vendors get cranky when their payments don’t come through.

So, what questions can cause AP to go scurrying to the files?  Well, anything that the computer system doesn’t capture, like:

• Who authorized this payment?  Someone may have exceeded their limit.  Someone may have authorized a payment without knowing all the facts.  There might have been a dispute with the vendor AP was unaware of at the time.
• Why did we do this?  Sometimes the simplest questions can be the hardest to answer.  Staff have to look at the invoice.  Maybe there’s a comment there.  Or maybe the Purchase Order has more detail.  Wasn’t there an email discussion about this, maybe six months ago?  You get the picture.
• Tax (or anything to do with the government).  Governments have an annoying habit of changing their minds.  What used to work has suddenly changed.  And guess what?  The change is retroactive to this time last year.  You have to pull all of the affected invoices and rework them using the new rules.  Good luck!
• Litigation.  Lawyers like to go fishing, hoping to catch something to their advantage.  When a requirement to produce documentation is received, not only do you have to pull and make copies of all of the documentation, but you also need to review it yourself to determine the impact of what you find.  I hope nobody had plans for the weekend.

You get the idea.  You need a central repository that will capture electronically everything at the time the transaction is done, including email exchanges, purchasing documentation, contracts and, of course, the approved invoice itself.  And for those people who can’t remember if they submitted this or that expense, wouldn’t it be cool to send them a link and say, “Feel free to browse the transactions yourself.”  Then your AP department will get a good night’s sleep and all your vendors will get paid on time.

Reposted with the kind permission of iDatix:  http://www.idatix.com/insider-perspective-what-keeps-you-up-at-night-in-accounts-payable/

Cover Letter Blues

Reading all the resumes was depressing.  We're hiring a new manager and I was going through a stack of them with the human resources consultant.  The resumes looked remarkably similar and there wasn't a decent cover letter in the pile.  "We should have required applicants to have good communication skills," I joked to the consultant.  "We did," he replied.

Here's the way I see it.  My resume is all about me.  Me me me.  My cover letter needs to be about the employer.  You you you.  Here's my advice to anyone applying for a job:

1. Go through the ad in detail.  Take all the requirements seriously.  Think about how your background fits with the job.  
2. If this job is important to you, do some more digging.  Look for the challenges faced by the employer.  Look for things that aren't in the job ad.  Is the industry cyclical or in decline?  Are they threatened by foreign competitors?  Are they having to deal with explosive growth?  Check out the company's web site as well as any news articles that mentioned them.
   
3. Pick the top three challenges and do a SHORT paragraph for each.  The opening sentence should start like this:  "You are looking for someone with solid industry experience who can lead the team."  You can then tie their requirement to the skills and experience outlined in your resume.  By the way, if the evidence you want to use is not in your resume, then update it.  There is no rule that says you have to use the same resume at each company.
4. That is the meat of your letter.  Next you need an opening.  The opening is important because it needs to grab the attention of the reader.  Show them that's it's worth their time to read the rest of the letter.  Since so few people seem to do this, I would use the opening to show that I understand the challenges this company faces.
5. Finally, your closing should be a call to action and a polite ending of the letter.

Remember, if you are applying for a management position, communications is part of the job, even if it isn't in the job ad. You need to show that you can analyze a situation, convey your thoughts briefly and clearly, make a persuasive case and be sensitive to the needs of others.

Oh, and please spell the name of the company correctly!

Fragile Giants (2)

This is how a team falls apart: Remove a key player, and the social bonds that keep their friends on the job weaken. Before you know it, you've got a group of employees collecting paychecks, not a team working for a goal. Bugs go unfixed; servers crash; the design becomes ugly; and users flee. This could well happen to Flickr. Back up your photos now!

If that happens, what it tells us is that the culture of Flickr was always illusory — one built on personal ties rather than more lasting devotion to a cause. If so, the notion of exporting it to Yahoo was a delusion. That's the problem with turning a community into a commodity: Take away the people, and you have nothing left.

That is how the Valleywag blog described the layoff of a key member of the Flickr team: George Oates. It struck me how close this analysis was to my musings in Fragile Giants. Owen Thomas is talking about those same elusive values that take a company from Good to Great, whether a giant or not.

I disagree with Owen on the value of devotion to a cause as opposed to personal ties. I don't think that principles alone fire the human spirit unless they come in human form. We really need living, breathing principles that can show us the way past obstacles and help us see our potential. In other words, devotion alone is not enough. We need a leader, preferably one as principled as (s)he is charismatic.

I also wouldn't call the culture of Flickr illusory, but I would call it fragile.

CFO = Maestro?

Is this your image of a conductor, someone who insists on being called "maestro", someone with a whim of iron who can quell opposition with a single insult, someone who makes trained professionals quake in their boots?

Now, let me tell you about Peter. He's a professional. He has exacting standards. He knows what he wants and he works hard to get it from the choir and musicians he conducts.

But somehow, naked aggression is not in his toolbox. You will hear him laugh rather than snarl. He is more supportive than demanding. But he's not soft. When the altos were hesitant about their entrance, he stopped the music and asked them to inject more confidence into their part. He then repeated the section.

He treats his soloists with respect. He will consult with them about timing, but still he knows what he wants. "There is a time for drama, for spitting out the consonants and cutting the notes short. This is not that time. You need to lament," he tells a tenor. Later in the practice he will compliment him when the tenor injects the right amount of drama into another part. Peter's direction is clear and precise. He is careful that everyone knows their cue. When people don't understand, he takes the time to choose other words to describe what he wants.

The work we're practicing is Handel's Messiah and Peter has invited me to play trumpet. There are over 50 individual pieces of music in the Messiah and the trumpet figures prominently in only three of them, so I have lots of time to study Peter's style.

If I had to use one word to describe Peter, it would be "professional". He doesn't use his position to demand respect, he earns it. He knows his voice will be heard because he knows how to listen. I have never seen him raise his voice, yet he makes it clear when he thinks you could play better or are out of alignment with his musical vision. On the whole he is a casual person, yet, when the situation requires it, he assumes the dignity and poise of his position.

He makes mistakes. He will stop the practice, say that he started at the wrong speed and make a note on his score so that he doesn't do it again. If someone on the team objects to one of his decisions, he will listen and is willing to change his approach. Somehow that makes other people willing to change their approach as well. The result is a committed, professional team of people who enjoy their work.

Now, what's your image of a CFO?

Fragile Giants

When I looked up "Business Management" on the Amazon web site, I was greeted with more than 171,000 titles. How do you decide which ones are worth while? What I do is wait. Most of the management books I read are five or six years old. If they are still recommended by my friends after the buzzwords have died away, then I will crack the cover. Using this system I completely avoided TQM. Don't even ask me what it stands for!

My latest read is Good to Great by Jim Collins (2001, Harper). It is a rigorously researched study into what creates lasting success in companies. Now, here's the other reason why I read old business books: you get the benefit of 20/20 hindsight when looking at the company examples they use. For example, the companies cited in Good to Great include Fannie Mae, Freddie Mac and Circuit City. Just take a look at their share prices now!

I know that sounds like a cheap shot, and I don't mean to pour cold water on Collins' excellent research. The fact that some of his examples would no longer be classified as great companies does not invalidate the research. No, for me the lesson is that companies, even the huge great companies, are fragile. Their golden towers can be breached, and all it might take is a string of bad years, a major lawsuit or a technological innovation in a competitor's hands.

Value Your Values

Collins goes to great lengths to identify the keys to a great company. I'm not going to repeat them here, because they are meaningless without the accompanying analysis, but he does say that corporate values are one of them. He is careful to say that different great companies have achieved success with different values. For example, not every great company is customer centric or believes in a high quality product.

My point is that once you've found that sweet spot, hang onto it for dear life. Train everyone in it. Guard it with your whole corporate existence, because what the experience of the fragile giants shows is that once those values are lost, the slide from greatness can be fast.

Creative Conflict

A friend recently quoted these words to live by: "if two people always agree, then one of them is redundant." I firmly believe that there is a role for conflict in every organization. If I, as the accountant, am the steward of the organization's financial resources, then I have to be sure that they are well deployed. Inevitably that will lead to my asking probing questions of other company managers. We will probably disagree on major points, but if we continue to respect each other and listen to each other's arguments, then the result will be a better company.

Risk

How many companies really assess the risks they face? These days, "risk management" has become a euphemism for insurance, but business risks go far beyond the perils that insurance companies are willing to write policies for. For example, did the big 3 North American automobile manufacturers assess the business risk of their product line decisions? If they did, then clearly their analysis was faulty.

I am reminded of the words of Thomas Carlyle, "To the blind, all things are sudden", as quoted by Marshall McLuhan. The position of the big 3 has been being challenged for years by smaller, more efficient foreign cars. Despite the words of the top executives when they went, cap in hand, to the Senate, the only thing that we couldn't predict was exactly when the dam would burst.

Are we accountants fulfilling our role as the voice of prudence and financial stability? Are we still respected members of the senior management team? Or are the deals being made behind our backs?

Like a Marriage

Marriage relationships mature and change over time. In the early years, you have the excitement of facing obstacles together. Even though they may have been poor and struggling, if you ask people who have been married a long time when they were happiest in their marriage, many will point to those early years. I believe working at a company that is striving for greatness can be like that. The early times are exciting. You see yourself as the proverbial David, slaying the giant. Later on, when the goals have been met, how do you keep complacency from seeping in? Apple has been accused of eating its young, by launching new products that compete head to head with the existing product line. Maybe this is to keep the managers sharp as well as the technology.

Bottom Line

At the Church, we spend a lot of management, staff and volunteer time discerning what our ongoing purpose is in the world. Why are we here? What principles and priorities should guide our actions? Whom should we help? What are we being called to do? Even if you are not a church, you would be wise to ask those questions and live by the answers.

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.