Tag: accountability

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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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Accounting Professionals, You’re right – your clients don’t care about the numbers.

Accounting pros, what your clients care about is how they’re doing and if they’re on the right path.  Are you helping them understand that, or are you just the guy who works with the numbers to make sure they’re accurate?

Accounting professionals are having a hard time of it right now, with clients demanding more insight and assistance in helping to build value and profitability in their businesses, yet accounting professionals continue to be mired in the details of the numbers.  It’s like the old saying about not being able to see the forest for the trees.  You spend time in the trees, counting trees and making sure the trees are properly categorized, but are you seeing how this group of trees performs compared to others in the forest?  The analogy isn’t that far off.  You see, if there are other trees in the way, or if it doesn’t rain enough, the tree won’t grow and thrive.

This is what it’s like out in the world, where your business is just one of many.  It’s not like you can grow and thrive no matter what others are doing. If they’re bigger than you and take all the light, then you can’t grow.  If they take all the nutrients and resources, you can’t grow.  If it doesn’t rain, you can’t grow.  Somehow, some way, you have to find a way to stand above the others, get the light and the resources and the rain.  Someone in the business should be paying attention to this bigger picture, and it is often the business owner.  Their accounting professionals, on the other hand, tend to remain in the dark, below the sun, counting numbers because the owner isn’t interested in counting.  The owner is interested in growing.

Accounting is about numbers, but growing a successful business is about numbers and strategy.  Historically, the numbers tell you how the business has performed up to this point.  Adding in the elements which speak to strategy, you can then look at what your potential performance will be in the future, and then make the necessary adjustments to make sure that the potential is realized.  The accounting professional acting as a small business CFO must be prepared to help business clients look beyond the numbers to their meaning and what they say about the business today, factoring in elements relating to business strategy and market forces to reveal what they indicate about the future.

Accountants, it’s time to recognize that you are the only ones really worried about the numbers.  Business owners just want to understand what the numbers mean and what they can do about them.

Reducing costs and managing expenses and cashflow is critical, yes, but how many business owners actually know what they’ll be up against when looking for financing, or a buyer? Or do they even realize that they’re not on the path they wanted… building something valuable they can leave to the kids? Sure, the cashflow may be there, and they’re taking a healthy monthly salary… but does that really tell the entire picture or show them where they’re likely to end up? No, it doesn’t, and every accounting professional knows that truth.

While it’s true that bad accounting data turns into bad decisions really fast, it’s also true that too many accounting professionals THINK their client’s don’t care about what the numbers SAY just because they don’t care about the numbers. I would suggest that maybe small business owners care far more than their accounting professionals recognize… and they care about building value and not just accurate digits.  This is one of the reasons why KPI dashboards, dynamic reporting tools, and business valuation solutions are so popular among small business owners – they are able to have a conversation with their business data that their accountant isn’t having.

Can self-help reporting and valuation tools be useful to business owners? Well, that’s sort of like asking if trying to figure out what you’re worth (or not, as the case may be) will hurt your business.  Information is power, and every business owner wants to believe they have the power to succeed in their own hands.  Just because they’re not having this conversation with their accounting professional doesn’t mean they’re not thinking about it.  Maybe they’re just not asking and the accountant isn’t offering.

Accounting professionals, go ahead and continue to monitor KPIs and crunch the numbers and show cash flow (real cash flow, not just today’s bank balance). But if your client had 1 hour per month to actually spend working ON the business (on the forest), trying to make sure their business is heading where they originally planned to go with it, wouldn’t it be a good idea to show them where to spend that time?  Yes, it would, and adopting the use of realtime reporting and analysis tools for business clients can help do that.

Data dashboards and decision-support solutions are important tools which help business owners understand their businesses better.  Rather than viewing these tools as dangerous or competitive, accounting professionals should view financial analysis, business valuation and KPI reporting tools as something they can use to help build value in the information they develop, rather than trying to convince clients that the value IS the information and not the guidance it suggests.  The data won’t make the tree grow, it’s the guidance that feeds it.

Make Sense?

J

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Bookkeeping and Benchmarks – Getting the Numbers Right

I am a big fan of business analytical and reporting tools.  I very much believe in using industry benchmarks as a means to understand various aspects of business performance as it is compared to others.  I feel strongly that this type of information is essential at all stages of the business, and is useful for planning and forecasting as well as in daily business management.   There are a lot of tools available now which provide KPI (key performance indicator) reporting, dashboards, and industry comparisons.  The thing that none of these tools provides is an assurance that the underlying data is any good.

For data-driven reporting and analytical tools, the reliance upon customer- reported and accumulated benchmark data is both the benefit and the problem.  Drawing upon actual customer financial data is what makes the reporting solution useful – reflecting the realities of the business as they are revealed in the accounting data.  The problem is that the data will often be flawed in some manner due to the lack of accounting knowledge of the user.  Particularly when small business owners take it upon themselves to perform their own bookkeeping work, there is a large potential for the information to be incomplete or erroneous, or at least not truly reflective of the business finances.

It is essential that accounting professionals be involved in the accounting process to ensure the accuracy of the information presented to any analytical and reporting solution, thus improving the quality and value of the information.  Further, I would suggest that accounting and business professionals would look to these types of tools to assist in the identification of issues or conditions which exist in the business requiring attention.  Business owners would get far greater value from the services of their accounting professionals, and accountants would deliver a much higher level of tangible value to their clients.

If the accounting professional is not regularly discussing business issues and conditions with the small business client, the client can use their own tools to attempt to gain the insight.  HOWEVER (note the big letters), any small business owner who tries to do their own books and use their own decision-support tools is likely to run into problems. While it is true that some accounting professionals are not offering the level of guidance and insight (“value intelligence”) that some analytical and reporting solutions might try to offer a small business user, suggesting that the DIY reporting tool is useful when coupled with DIY accounting is questionable at best.  Why?  Because most small business owners and untrained bookkeepers do not know how to perform proper accounting.  And bad accounting data turns into bad business decisions really fast, even with the coolest-looking reporting tool.

badaccounting

What’s the bottom line?  The participation of a qualified accounting professional is necessary to make sure business bookkeeping information is properly accounted for, even and especially when great tools and solutions designed to help small businesses get their work done are being used.  The accounting professional is necessary to make sure information is classified correctly, connected and associated with the proper supporting information, and that the data is complete.  This is a lot of work if done on a regular basis (which it should be) yet many accounting firms don’t even offer the service, or offer it affordably.

Accounting professionals working with small businesses, look at it this way: it makes more sense for you to engage a contract bookkeeper and make a bit of money on the work they do to serve the client than it does for you to

a) lose the client to an accountant offering bookkeeping services, or
b) charge the client to re-write up the information, which isn’t really profitable for you and isn’t as valuable to the client

Serving larger businesses may provide firms with an ability to be more selective of the services they offer, but small business accountants need to take an entirely different approach.  Small business accounting professionals need to be full-service providers and help clients get the complete range of services they need, including daily bookkeeping.

Accounting professionals helping their small business clients get complete service – from basic bookkeeping to insightful planning and advice – that’s the benchmark for high value accounting in the world of small business.  It’s the only way to make sure the numbers are right, and that the business owner is looking at the right numbers.

jmbunnyfeetMake Sense?

J

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Lean and Mean – Improving Sales and Distribution Performance

Lean and Mean – Improving Sales and Distribution Performance

It is surprising that, even in this world of Internet marketing and online commerce, many businesses are operating at levels far below their potential.  Reliant upon people rather than information and process, these businesses are weighted down by their legacy approach to getting things done.  They throw money and personnel at the problem, adding more “fat” to the business and making sustainability just that much harder to achieve.  The right approach, and the mantra of all manufacturers and distributors, should be to work “lean and mean”, applying technology and business principles which support agility and improved process efficiency.

The center of lean business is in operations, and includes all aspects of the “order” processing and support systems.  From the point where an order is sought, to the point of order entry, and through to delivery and service – all aspects of the operation must be addressed for the business to achieve maximum success.  Innovating in operational areas, such as in order management and distribution, can help the business rise above others in the market and create a significant competitive advantage.

What becomes challenging for many businesses is the fact that years of working in established “silos” often makes it difficult to introduce the cross-functionality necessary to support lean operations.  It is not sufficient to simply suggest that the organization work collaboratively to streamline processes from order through to service and support.  Work groups and team members must work together and adapt to delivering process improvements, following through with the actions necessary to turn the philosophy into bottom line results.  Good support is required to keep customers, and a good product is necessary to support increased sales.  No aspect of the operation stands alone, so each is necessary to participate in making end-to-end improvement.  Additionally, back-office processes must be aligned to work collaboratively where required, supporting efficient operations rather than creating unnecessary bottlenecks or delays.

The key to developing a lean and mean, high performance operation is applying the technology and principles which translate into improved profitability and customer retention.  In many cases, the same solutions which create customer “self-help” capabilities are also solutions which can address similar needs for internal business users. Ultimately, the goals are elimination of redundant or error-prone processes, establishing the sharing and secure collaboration of information throughout the organization, implementing integrated systems which allow users to efficiently perform their particular tasks, and working cooperatively with others in the supply chain to maximize the real-time capability and efficiency.

Rather than continuing to utilize basic record keeping solutions, or accounting products which aren’t prepared to address the specific operational aspects of the business, owners and managers should be looking to the tools and solutions which will help them develop the framework to support improving operational performance, turning people knowledge into sustainable business profitability.

Make Sense?

J

Accountants and Small Manufacturers: Getting in Front of the Ball

There’s a lot more to accountability in a manufacturing or inventory-based business than simply keeping track of money in and money out.  Particularly in an economy when nobody can afford to build or stock products too far ahead of demand, it is essential that these businesses have a means to not only track and manage purchasing, manufacturing, distribution and stocking activities, but to understand conditions or trends which impact the flow of materials and cash through the business.  Read more…

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Virtual CFO Services and Partnering with Bookkeepers

Virtual CFO Services and Partnering with Bookkeepers

Many accounting professionals seek to become more involved with their business clients, helping to institute the controls and establish the processes which support sustainability and higher levels of business performance and value.  Acting as the Virtual CFO to the business, these professionals use historical financial information and detailed operational data to guide their clients towards stated goals.

While this move to engage clients are deeper operational levels is a worthy effort, there is often a disconnection in the supply chain for these services.  In too many cases, there is discord or a lack of understanding and trust between the CPA and the bookkeeper supporting the daily processing of the business information.

The business bookkeeper is the person “in the trenches”, getting daily information organized and processed, reconciling accounts, and generally tasked with recording transactions resulting from business activities.  Because the bookkeeper operates very closely with the business, they are perhaps in the best position to provide insight into how operational tasks and various business functions are performed and “accounted” for.  While the bookkeeper may not have the skill or experience to design change in these systems, they are a particularly powerful source of current process information and, in some cases, represent the barrier to change.

Years ago, as CPAs removed themselves from daily bookkeeping services to focus on “higher level” work, the opportunity was created for outsourced bookkeeping services to fill the gap in providing daily book and record keeping tasks for small businesses.  Small business owners in particular need help with the management of their bookkeeping and accounting, and without the availability (or affordability) of getting this service from the accounting professional, businesses turned to the bookkeepers who stepped in to fill the gap.  Yet every year, businesses turn over their bookkeeping and documentation to CPAs who simply re-create the bookkeeping in the form of “write-up”, trusting only their own work when it comes to tax and financial statement preparation.

It would seem that there would be a naturally occurring desire of CPAs to partner with professional bookkeepers in order to provide a full service capability to business clients and eliminate the need to reinvent and write-up the information, but this is often not the case and may be partly due to the reality that CPAs are trained on accounting principles while many bookkeepers are really only trained on the use of a software product.  Too often, bookkeepers gain their education primarily based on using QuickBooks software, and “speak” the language of QuickBooks rather than “accounting” resulting with a minimized view of the bookkeeper value by the CPA.

The CPA is thinking in terms of AR and AP subledgers, while QuickBooks bookkeepers think in terms of customers, invoices, and bills to pay.  While the language of QuickBooks has been designed to be meaningful to the non-accountant user, it is this very language and presentation which has made QuickBooks both a popular small business accounting solution as well as a foundational solution for an outsourced bookkeeping offering.

Working more closely with the bookkeepers, CPAs could help their clients not only achieve a more accurate and timely accounting of activities, they could also influence areas where necessary controls should be implemented, or where inefficient processes might be improved.  Providing not just information but also direction and actionable ability, these accounting professionals are now positioned more directly to provide the CFO services businesses need.

CPAs must find a way to get past their prejudices in working with business bookkeepers, and recognize that these operators “in the trenches” could be their most useful resource – and their most powerful ally – in the supply of Virtual CFO services to the client.

Make Sense?

J

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