Category: risk management

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Philosophy of Process Improvement: Today’s CFO Focusing on Operations

Philosophy  of Process Improvement: Today’s CFO Focusing on Operations

There are a great many methodologies and approaches to “making businesses better” through process improvement.  From SixSigma to Continuous Process Improvement to Total Quality Management – all describe methods of measuring performance and outcomes to return intelligence oriented towards improvement.  Many of these approaches are generally applied in manufacturing businesses, because in manufacturing it’s easier to see where processes may be flawed because the process works with tangible elements.  Making corrections in a process can improve the performance of that process by reducing errors or increasing efficiency.  The truth of the matter is that every business is like a manufacturing business, and applying measurements to the various processes the business performs can reveal the secrets to improving not only process performance and product quality, but resultant profitability.

A recent article on CFO.com  titled Operations Take Center Stage, author David McCann discusses how some CFOs are improving business profitability and performance by delving deeper into operational areas of the business, and not remaining focused squarely on accounting and finance issues.

“Operations is the key to everything,” says Larry Litowitz, finance chief at SECNAP Network Security, a secure Internet-services provider. “That orientation is found most at manufacturers, but it should be at every company.”

Fiscal and financial matters are important to every business, but focusing on accounting for the end-result of business activities assumes that the work leading to the result is useful and effective.  As more attention is paid to conservation of cash, reduction of expenses, and overall profit improvement, CFOs are necessarily moving deeper into the operational aspects of the business to uncover potential not previously addressed.  In some cases, the move is more a function of self-defense and necessity than desire, as businesses increasingly compress spending on management, merging the functional roles of CIO, COO and CFO.

Increasingly, CFOs may find themselves taking on operational tasks whether they want to or not. At larger companies, the steady waning of the chief operating officer position has resulted in more operational responsibility for CFOs, recruiters say. In 2000, 47% of the 669 companies included in either the Fortune 500 or S&P 500 had COOs; in 2012, only 35% did, according to executive-recruiting firm Crist Kolder’s 2012 “Volatility Report of America’s Leading Companies.”

Some accounting professionals may believe that they don’t have the skills and experience to suggest changes in operational areas of their client businesses.  I would suggest that logic and reason are generally the prevailing factors supporting process improvement – reasoning that is often developed through simple observation.  Taking the time to understand what the business is doing at each level, and then actually observing those activities and accounting for their effectiveness and error rate, is how professionals can spend quality time in the business and uncover hidden profit potential.

Litowitz says CFOs can influence operations at a range of companies, including service-oriented businesses. “It’s really no different. The work is a set of activities,” he insists… “All these activities can be analyzed, controlled, and measured against a predetermined standard,” says Litowitz. And just as on a manufacturing floor, efficiency generates profit, justifying the CFO’s involvement.

Make Sense?

Joanie Mann Bunny FeetJ

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Helping a Small Business Customer Choose Your Solution

In a previous article entitled The Psychology of Small Business IT Adoption, I discussed Icek Ajzen’s Theory of Planned Behavior and how a number of researchers applied it to the process of small business IT adoption.  The concept, which ended up proving to be true, was that IT adoption by small businesses is a function of a number of fairly well-defined elements, and is not so much defined by specific types of businesses or the business leaders.  The elements which lead to the act of business IT adoption (as well as adoption of other services, I’ll bet) can be identified and addressed by the potential provider of the product or solution ahead of time, making the possibility of actual adoption much greater.

Knowing how your prospective customer will approach the decision-making process is important, and getting a little insight ahead of time never hurts.  Particularly when a lot of customers don’t actually reveal their thinking, it can be tough to know where to begin.  You’ve been there before – you’re making your pitch and asking questions, but are getting nothing in return.  Sometimes it’s “deer in headlights”, and they are simply overwhelmed.  Other times they’re thinking about things you’re not telling them… but they’re not letting you know you’re not telling them.  Dead air, and then a lost opportunity.

Boiling it all down to a fairly simple explanation, businesses adopt IT because there is a conscious plan to do so, and that plan is supported by a belief that the solution will do good things for the business, the solution is a recognized (if not expected) approach, and the business believes it has adequate resources and capability to effectively handle it.  It’s all about:

  • Intent,
  • the attitude towards adoption,
  • belief of expected outcomes and their value,
  • expectations and the motivation to comply with them, and
  • evaluating barriers and the adequacy of resources to overcome them.

Intent

The first and most important element is intent, a conscious plan to get or do whatever it is.  If the customer has no plan to get the item and sees no need for it, then the barrier is pretty high.  However, if the need can be created, and the customer can be driven to believe they need to get the item, then there is intent.  Now they’re looking for you and not vice versa.  Consider that the Snuggie wasn’t “something” until folks were told that blankets simply weren’t good enough any more for lounging around (they don’t have sleeves!).  Once people believed there was a problem, they pursued finding the solution.

The attitude towards adoption

Next, what’s their attitude towards getting the item?  Sometimes people go looking for things they don’t think they can actually get, and often they know they need something but don’t think the solution is even out there, so they have a jaded viewpoint from the start.  A prospect with a positive attitude and who wants to actually find a solution is far better to work with than one who has already determined that you can’t help them.  Sometimes all it takes is a good listener to help create a positive attitude and make someone willing to tell you how you can help them.

Belief of expected outcomes and their value

Now, what does the customer think they will get from the deal?  Will the solution actually solve problems or create new ones, and are the perceived problems to be solved big enough to really worry about in the first place?  Small businesses tend to be very cash conscious, wanting as much value as possible for any expenditure.   Further, most small businesses don’t let go of their cash easily and certainly not for frivolous purposes, so a successful sale is often supported by the customer’s belief that they will get a real solution and benefit – something of value which will be realized, and that is important enough to deal with sooner rather than later.

Expectations and the motivation to comply with them

It is interesting how many small businesses go shopping for products or solutions that they don’t actually intend to purchase or adopt.  Sometimes they just want to be able to say “we’re looking in to it”, even if they aren’t and don’t plan to, and sometimes they have a business requirement that they don’t want to have to meet due to cost or complexity or whatever.  Let’s say a business has customers complaining about unresponsive or bad support, and how they should have a ticketing system to help track issues better.  Maybe the customers have the right idea: maybe the business should have a ticketing system (the business provides support and ticketing systems are considered a support service industry norm).  This is the expectation.  Let’s also say the business uses a CRM solution to handle support, and they believe it handles things just as well as a separate “ticketing” solution.  Just because there is an expectation (customers want ticketing system), it doesn’t mean the business is motivated to comply (CRM does just fine).  Expectations come in many forms and from many sources – customers, vendors, employees, contractors, the government and regulatory… on and on.  Expectation and motivation to comply are both high when it comes to legal and regulatory issues, as these things can be tied directly to money and cash and risk.  In other areas, it may not be as easy to identify or address.  The best way to look at this issue is to try to understand what the business is doing now, whether the approach works or may be materially improved in servicing their business and model, and whether or not the business recognizes an immediate need to make the change.

Evaluating barriers and the adequacy of resources to overcome them

The final and perhaps most important factor in SMB adoption of IT is the simple belief that it can be done.  Done at all, I mean, not just done “affordably”.  My dad taught me that it’s not a bargain if you can’t afford it.  Now, this doesn’t mean that there aren’t times when a business needs to bite the bullet and extend itself to become better.  But any small business in this position is a tough sell, simply due to real resources and capability.  No matter how much a business may know it needs something, if it really can’t do it, or believes it can’t – it won’t.

Make sense?

J

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Accounting Professionals Should Do This: Be Proactive and Regularly Communicate with Clients

Accounting Professionals Should Do This: Be Proactive and Regularly Communicate with Clients

I’m not sure where I heard it, I think it was a sky diver on TV, who said about the sport “you’re dead until you do something about it”.  At the same time that I realized that I never wanted to sky dive, I also realized that this fairly desperate philosophy at some level applied to a lot of business situations. Weirdly enough, one of them was how this relates to public accountants and bookkeepers working with small business clients.

One of the things I’ve heard a lot throughout the years is that bookkeeping and doing other work for small business clients is tough, because they never bring you the information you need when you need it.  With a philosophy of “help me help you”, accounting professionals are trying to find ways to make it easier for the client to deliver the work to them.  The missing element, however, is a closer working relationship with the client, coupled with PROACTIVE and REGULAR (please note the big letters) reminders that getting the work to the professional is the only way to get it processed in time .

How many firms really communicate with clients only during tax season?  Is the client organizer your main method of reminding them that you’ve got a relationship?  It’s not even funny how many business owners couldn’t name the accountant who did their tax return last year, and who don’t seem to care to know.  This is definitely not the way to build and retain client relationships, yet it is the approach many professionals take.  And then they wonder why the client base isn’t growing, and why they are having a hard time “communicating their value” and they want to know how to get more of that profitable “higher level” work.

You’re dead until you do something about it.

Put into the context of the reactive accountant, it starts to make sense.  Accounting professionals must be proactive – be doing something to build customer loyalty and retention, be actively and regularly communicating with clients so it’s not a mad rush during tax season, and be implementing tools and solutions to help them offer more meaningful services to their clients.  This is how to make the firm grow and thrive.  So, go do something about it.

Make Sense?

J

Being Proactive, Not Reactive – Accountants Need to Increase the Speed of Service Delivery from Intuit Accountants News Central

Read more about Building Smarter Businesses: Staying Relevant in a Cloud Accounting World

read more…

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Does Your Customer Data Support the Value of Your Receivables? | FundingGates blog

Does Your Customer Data Support the Value of Your Receivables? | FundingGates blog

Trade Accounts Receivable (AR) represents the credit a company extends to its business partners. AR is essentially an approach to financing customers’ business operations, using the supplier company as the lender rather than a bank or other source. Particularly when markets are slow-moving and cash availability is low, trade credit tends to be what keeps businesses in business. AR is a business asset (which explains why it shows up on the balance sheet), because it is something the business has that is of value. When the business needs to get a little of its own financing, should an approach using AR as the basis be a consideration? Is it even possible?

AR “financing” means that the business trade accounts receivable are the main consideration of the lender in providing financing, where the AR is either collateral for the loan or is a factor making the business eligible for the loan. There are many types of AR-based financing, and there are still more issues to think about before trying to use AR as a financing tool.

When it comes to other assets in the business, the information about them is probably pretty well-known. Physical assets in particular don’t leave a lot of question as to their value – at least in terms of what was paid for them and then depreciated over time. Other assets, like Accounts Receivable, are a bit more difficult to value. Realistically, the value of the AR may not actually BE the book value of the AR, because not all of that money may be able to be collected. Considering that companies fail or go bankrupt or experience other events which cause them to default on obligations, there is risk connected to the AR and, subsequently, a question of whether or not it makes sense to “leverage” that AR for immediate cash.

There is research out of the Columbia School of Business (among other sources) which discusses a condition called “information asymmetry”and how it may impact the business decision to use AR financing.

Read the rest of the article on FundingGates blog: Does Your Customer Data Support the Value of Your Receivables?.

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Knowing Enough to Run a Successful Business

Knowing Enough to Run a Successful Business

If you own and operate a business, you probably want to make it successful.  Granted, success comes in many flavors, and there are also “degrees” of success, where maybe you do okay but not as well as you’d like (or not as well as your local competitor).  Running a successful business, and crafting a business with sustainability and long-term value, takes information as well as know-how.   Remember that information = power and you want to be as powerful as possible when it comes to running your business.

While today’s information technologies, mobile devices, and “everything as a service” have the capability to deliver way too much information for the average business owner to make sense of, there are a few areas of the business where investing in a little insight and reporting can make a big difference in the level of understanding you have about the business.

Rather than making decisions based on guesses or gut, business owners should use actual historic data relating to these are key areas (and key performance indicators) to help predict sales and order volumes, estimate cash flows, and forecast profitability.

Getting Customers

The “customer lifecycle” does not start when someone buys from you, it starts when they become a potential customer (often referred to as a target).  Even before someone buys, your business may expend resources to expose your brand or product to them on websites, in advertisements, and through other marketing channels.  These marketing efforts will (hopefully) result in the generation of qualified leads for the business to sell to.  Unless the business understands the costs involved and the efficiency of the marketing and lead generation efforts, it cannot understand the actual cost of getting a new customer.

The next step in getting customers is turning a qualified lead into an actual paying customer.  The business will want to keep track of conversion of leads into customers, along with sales data including total sales, number of items sold, and how items were priced.  Powered by sales performance data, business owners can learn whether or not their lead qualification efforts are working, if their products are competitive, and if the pricing is in alignment with the industry.

Producing Work

When businesses operate, they essentially produce whatever work product their business model is designed to produce – whether it is a professional service, product, logistical support or whatever.  Every business produces some type of work product.  This is the operational aspect of the business, and business owners should want to know as much as possible about how well operations are running and how effective the operation is.   This isn’t just the cost of production, (the yield expected for a given investment in materials or equipment), it is also about the quality of the product (customer satisfaction) and the quality and value of the service behind it (customer retention).

Keeping Money

Money (more specifically, cash and the availability of it) is the metric that most small business owners tend to focus on.  It makes sense, too, given that most small businesses survive based on what they have in their bank accounts.   Then again, looking at the accounts receivable and payable won’t tell the entire story, either.  Business owners need to know how quickly their customers generally pay, and they need to know how much capacity or inventory they have before needing to buy or develop more.

The message underlying this entire discussion is that fact that you can’t analyze what you can’t quantify (no information = no power), so it is essential that systems be in place to capture information from the business and its activities.   Further, recognize that it takes some skill and experience – perhaps from your trusted accounting professional – to put the information together so that it makes sense and is useful.

Make Sense?

J
Measure, Manage and Succeed.  It’s all about knowing how to speak the language of finance