IS YOUR OFFICE A ‘HOUSE OF CARDS’?

 

If you’re not a fan of Kevin Spacey as the devious maniac & master manipulator  Frank Underwood in Netflix’s ‘House of Cards’ , let me give you some background. He was a powerful congressman slated to be tapped for Secretary of State.  However, the President’s Chief of Staff ruled him out.  Now he’s been sworn in as Vice-President, after murdering two people who were obstacles to his goals.

It’s a great series but Vice President Underwood is a scary guy.  The congressional in-fighting, the backstabbing and ‘take no prisoners’ mentality is a frightening look into the way things are at some level in too many good companies (and to some extent in Congress).  We’ve seen it on full display in ‘Mad Men’, and the sarcastic and cynical t.v. hit ‘The Office’. So what does that have to do with you as a Controller or Accounting Manager?  If your office is a kingdom of kindness, cooperation, teamwork, and respect…..then the answer is nothing.  But if there are few days that go by that you aren’t dealing with complaints by one employee against another i.e. the  smooth talker, the slacker, the sneaky one……let’s talk!

One of the biggest challenges trained accounting people face is moving into management positions and then dealing with their direct reports.  As a CPA with a BBA in Accounting, I can tell you that there wasn’t one single course available to deal with handling personnel.  I don’t remember ever seeing any CPE offerings on the subject.  We are born knowing how to breathe, but not how to manage. There are stacks of books, reams of papers and countless experts regarding inter-personal behaviors in an office setting.  You may have even found some that have helped guide you in managing your people so at least some work gets done. Recently, the Wall Street Journal published an article about ‘bad bosses’ and that the day of the ‘command and control’ boss is gone.  If you think barking orders will insure they are obeyed you may have a ‘dinosaur’ attitude of days past.  But it is you who is risking extinction.  The collaborative voices of your employees, marshalled against you can cost you your job.  I’ve seen that happen more than once. From my perspective, after having managed as a Controller in a very large privately held company, here are some of the things I believe must happen if you plan on getting anything done:

1)  Meet with your direct reports on a routine basis.  I know it’s not easy but meet at least once a week.  Schedule your meetings at 4:00 p.m. assuming quitting time is 5:00 p.m.  This way people will be less likely to ‘digress’ and you can manage your meeting to a goal of one hour.

2) Make sure when you are hiring that you have a written, very detailed job description available for the candidate.  The better people understand what is expected of them, the less conflict there is about job duties down the road.

3) Be fair and not petty!  The worst kind of manager is one who is petty.  It kills respect for you, it kills morale and it kills motivation.  Enforce the office policies firmly but fairly.  What is petty?  Denying an employee a few hours off to attend their child’s school program because they were late the day before.  Constantly denying people the equipment they need to get the job done because you worked there five years before you had one.  Get my drift?  Petty is small and mean acts against the people who work for you.

4)  During Staff meetings put as much as you can on the table about what’s going on in the company that you can share.  Keeping secrets, knowing more than they do, is also petty in this day and age of fast moving events and storms of information.  If you keep secrets when you don’t have to, so will your employees.  Count on it.

5)  Do not over share personal information about yourself.  If an employee tells you about her husband’s big promotion, or a big inheritance, be happy for them.  But do not share your life on Facebook or Instagram.  Reserve that for ‘family’ only groups.  My sister had a new manager who shared constant pictures of her children to her telecommuter employees, including a picture of her son on the operating table as he was carried in for a tonsillectomy!  But then when my sister needed time off for personal reasons it was denied.  So how do you think she felt about seeing more of her manager’s family pictures?  This is the kind of behavior that drives employees crazy and can lead to serious problems such as being pulled in by HR and questioned about your behavior.

The conversation in the arena of business management and productivity practices is gaining a lot of ground these days.  Do you really want to be like the president of AOL who fired an employee during a company wide conference call?  Maybe he was trying to prove how powerful he was.  He just proved what a terrible leader he is.  As Controllers, Accounting Managers, CFO’s, we can do better than that.

BACK TO BUSINESS IN AMERICA

It’s back to school today for many students.  And, it’s back to work today for controllers facing the first full work week of the year.

So, with that said, I am going to launch my first annual ‘The Everyday Controller’ list of predictions for 2014 in America.

  1. I predict that the U.S. Government and other governmental bodies should become your new best friend this year.  In years past, many small companies have felt safe flying under the radar of compliance.  I would suggest that this will not be so easily accomplished.  Build a history of compliance with the various agencies you must deal with including the IRS, your state’s environmental division, city and county officials, etc.  Regulatory oversight is not going away.  Build a proven track record of compliance and you will most likely reduce your company’s overall risk.
  2. I predict that your skills as a Controller in a growing company will be tested.  Companies experiencing rapid growth face their own set of challenges including finding and training new personnel, maintaining internal controls, working capital forecasting and many others.  In companies with both a controller and a CFO, the controller is normally working on the frontlines.  All controllers should make sure that there are open lines of communications with employees.  I cannot tell you how many disasters were averted because someone gave me a heads up.  Keep your door open as much as you possibly can.
  3. I predict that the single greatest challenge you will face in 2014 is keeping all your personnel happy.  In today’s world of work, many employees expect the flexibility to be able to attend functions during the day at a child’s school or to utilize FMLA to care for a sick parent.  It’s the 21st century.  And people want more than just money from their jobs.  They want choice, opportunity, challenges, flexibility and to be heard and respected.
  4. I predict that as a Controller, if you fail to keep up your personal and professional development eventually you will be seen as living in the past, doing things the old way, and even possibly ‘obsolete’.  You are a professional.  Even if you are not a CPA or CMA, you should take advantage of the courses offered for them.  Take a course on Internal Control, or Tax.  There are a number of courses that are specific to industry such as construction and the restaurant business.  Find ways to interact with others in your profession.

It is too easy to live your life at work careening from one crisis, one fire, to another.  If you don’t come to life except when something has gone wrong, you probably need to start building in a daily routine.  Develop projects you want to work on.   For instance an accounting manual for your company may be needed.  If you’re on an Exchange Server developing some of its capabilities.  Have a set time each week to meet with your staff.  Maybe even an hour or two a week for that professional development track.

Finally, having lived and traveled across the world, I can safely say that America is the business engine of the world.  You should be proud to be a part of that no matter how large or small.

MY BUSINESS BOOK LIST

I love books.  I inherited that trait from my parents.

In today’s post I am going to talk about some of my favorite business books and why they made my list.  Some of the smartest and forward thinking business people I have known are avid readers.  And, they are willing to share their favorites.  It also shows that you love what you do and have committed to lifelong learning in order to stay current and relevant.

There are thousands of books out  there championing the latest business buzz words.  There’s no harm in reading them, but, there are some good magazines like CFO Magazine that can present them in a much shorter version.

What makes a good business book is a matter of personal opinion.  Some of them do stand out more than others.  So, without further conversation, below are a few of my favorites.

THE CHECKLIST MANIFESTO – Author: Atul Gawande Published: 2009

I’d describe it as thought provoking and insightful.  It’s a fascinating read and never boring.  Dr. Gawande wrote this book while a surgeon at a major hospital.  If you are a list maker, you’ll agree with his premise that checklists are critical in more ways than you might think.  The section on how big buildings are constructed through the management of lists is enlightening and the reader can find many ways to apply these lessons to their own careers.  See how list making can organize and streamline your life a a controller as well as your personal life.

OUTLIERS – Author: Malcolm Gladwell  Published: 2008

Author of ‘The Tipping Point’ and the recently published ‘David & Goliath’ Gladwell gives new meaning to ‘thinking outside the box’.   While the anecdotal stories in each chapter will definitely broaden your thoughts about the subjects presented, it’s really a book about how data can provide proof that our assumptions are questionable at best.  I think the lesson learned is to look beneath the surface, to investigate and open your mind to other possibilities.  I think the accounting regimen we are taught in school is just that, regimented thinking.  As controllers, how can you reorganize or streamline your business, if needed, when you can’t think openly enough to see there is a problem.  You’ll find this a great read and one you won’t soon forget.

DOUBLE ENTRY – Author: Jane Gleeson White Published: 2011

Attention all accountants and accounting students.  This book is for you.  It’s strange that in Accounting 101 or 102 they don’t teach the history of double entry bookkeeping.  ‘Double Entry’ is subtitled ‘How the Merchants of Venice Created Modern Finance’.  It’s a small book but understanding how Luca Pacioli developed debits and credits and two sided entries which must balance provides a foundation for our understanding of how what we practice as accountants was developed.

If you have a budding accounting student you know, this book is for him or her.  I recommend you read it before you wrap it!

MAKING IT ALL WORK – Author: David Allen Published: 01/01/2008

In 2001 David Allen published his best selling book ‘Getting Things Done’.  ‘Making It All Work’ is a follow up to that book and where I discovered the author.

Gone are the days where managers, even top executives, had secretaries or administrative assistants.  They’ve been replaced by laptops, tablets and desktop computing.  There’s no one to hand you a paper phone message, or take dictation, or file your paperwork.  On top of that, all of us have more projects, emergencies, fires, personnel, etc. competing for our time.  It’s all exhausting!  His subtitle is ‘Winning at the Game of Work and the Business of Life’.  Treat this book like a manual that you refer to often as you try to squeeze more time out of your day to be truly productive.

ORGANIZED FOR SUCCESS – Author: Stephanie Winston Published: 2004

Stephanie Winston first became known when she published her ‘The Organized Executive’ over thirty years ago.  Of course, her ‘Organized for Success’ is much more current, it is still nine years old.  I agree, a lot has changed during that time.  However, the bones of the book concentrates on those things that keep us all from being more productive in our daily work life.  I consider ‘The Organized Executive’ and ‘Organized for Success’ a basic primer on how to fill the role of an executive based on how others have succeeded.

I recommend you also treat ‘Organized for Success’ as a manual you will refer to over and over.

You should be able to find all these books on www.amazon.com.  Pick one and dedicate yourself to some personal enrichment drawn from the pages of the books I have recommended.  Good Reading!

Think Like a Consultant! “How to Streamline Your Company from the Inside” – Part III

As we move into Part III, it’s time to follow up on the ‘scenarios’ presented in Part II.  We presented two different scenarios in which the Controller reported back to the owner his/her findings on two fairly significant (at least to the owner) mistakes that occurred.  In both cases, the Controller gained understanding of how these events happened.  However, there was no INVESTIGATION!  The controller did not ask ‘Why’ (or, how did this happen and what can we do to prevent this from happening again?)  I would want to insure it wouldn’t happen again, just to prevent the pain and embarrassment of events like this that fell under my watch.  with that said, let’s explore Scenario I.

As you will recall, in Scenario I, the company paid the same bill twice resulting in a duplicate payment of $100,000.  Based on the annual earnings of the company, this was a material event.  In fact, the $100,000 was to pay for a capital investment.  It’s time to have a meeting which includes your purchasing agent/employee and your Accounts Payable Department.   Does your company have a documented Capital Expenditures process?  A good process includes a ‘Faceplate’ that includes the justification for the expenditure, what division the expenditure is for, as well as signature lines for top management/owner(s).  Once the sheet is approved, it should be returned to the Purchasing Manager.  At that time, a P.O. should be written.  If the P.O. is electronically generated, a copy should be marked as the ‘Payment Copy’ (in the absence of a software solution provided for tracking these kind of payments).  In the case of a manual P.O. from a P.O. book, it should be policy as to which copy is attached to the Vendor invoice.  It should be the policy that when the vendor invoice is received it should be routed to the Purchasing Manager who checks it for accuracy against the P.O. and attachs the payment company.  Policy would prevent the creation of additional payment copies which would flag when a duplicate invoice was presented.  As the Controller, it should be your responsibility to insure that invoices of any amount are not paid twice.  It is one thing to pay a $75.00 invoice twice and quite another to pay a $100,000 invoice twice.  It may be necessary to have some different policies in Accounts Payable based on the amount of vendor invoices. Before you develop or change any policy or procedure, you should always get input from the employees in Purchasing and Accounts Payable.  Feedback and input is critical to creating an efficient and streamlined organization.  It doesn’t mean you have to act on every idea or concern however, you need to hear them.

DIAGNOSIS:  Either you had no policy in place, with procedures for handling payments of capital expenditures or they were not followed.

In Scenario II, there were numerous violations of policy and internal control procedures.  However, that said, as the Controller, you need to know that people who want to steal or mishandle assets will always be a part of the equation.  They are the ones that have no respect for rules, policies and management authority.  Therefore, there must be ways to monitor constantly by keeping a close watch on your inventory assets (or your cash).  Scenario II involves missing inventory.  The manager was put on probation and one would hope someone in HR or Management will monitor the employee.  Where do you as controller fit in?  It’s time for a meeting.  You have a problem with your Inventory team.  Not everyone on a count team is trained to conduct inventories so as to reveal cover ups.  In Scenario II, the count team took the word of the manager and essentially aided in falsifying the inventory.  I am not saying they were complicit, which generally they are not.  Simply  uneducated in why, when confronted with a manager asking them to write down a number on the physical inventory count sheet representing product they cannot see, they should call you.  Therefore, the weak link is really the count team.   Meet with all persons that participate in inventory audits and review the event.  Talk about how important it is to report a problem with an inventory count.  Also, emphasize that their notes about any ‘outside the norm’ counts are so important.

DIAGNOSIS:  Your count team had a lack of training to prepare them for handling the events described in Scenario II.

DOCUMENTATION REQUIREMENTS:

SCENARIO I:

Before you begin developing forms/checklists, you have to begin with a written policy.  If you’re looking for help on how to do this, enter Capital Spending Policy or Capital Expenditures Policy into your favorite search engine (Google, Bing, etc.).  You should find plenty of ideas.  If you need some help with this, just leave a comment.

SCENARIO II:

Your count teams need the following:  Written policy on how they will plan and execute the physical inventory.  A printed worksheet listing the products at a given location.  Sheets to attach notes, drawings, etc.  A Physical Inventory CUTOFF Worksheet.  There should always be a count team leader responsible for collecting all the information.  Please note that the Physical Inventory CUTOFF Worksheet should reflect cutoff numbers of invoices, receiving documents, credit memos, etc.  It should also be signed by the Location manager as well as the Count Team Leader.

Again, you can probably find some of these by using a search engine.

REFERENCEThe Accounting Procedures Guidebook by Steven Bragg covers almost every subject a Controller will be exposed to.  In addition, he has some wonderful forms peppered throughout the guidebook.  You should be able to find everything you need to know in his Chapters on Inventory and Capital spending.  I’ve read every page as a result of purchasing it through CPE Link for a self-study course to earn CPE’s.  It reads like a consultant’s guidebook.

Think Like a Consultant! “How to Streamline Your Company from the Inside” – Part II

Large consulting companies make money by promising change.  Over the years, consultants and business academics have generated countless buzz words.  For example, ‘paradigm shift’ (big in the 90’s), ‘just in time inventory’ (that’s still around), ‘prospecting’, vertical integration, etc.  In the La Quinta add I referred to in Part I, the consultant believes the answer is ‘synergistic integration’.  What does synergistic integration mean?  Probably it means different things to different people.  What it means to me is the favorite (and easiest) solution of many consulting companies.  Cutting costs by cutting employees.  But a controller who is already inside the organization should be able to achieve needed change if they are capable of and understand how to effect change.  Cost cutting and streamlining often go hand in hand as owners and management seek lower overhead costs.

Most consultants rely heavily on checklists and documentation.  Their documents have been honed and sharpened over a period of time and eventually become templates for how they approach a potential client hiring them to help improve operations.  It is the creation and  use of these templates that will be instrumental in organizing and executing your approach to any given area requiring improvement.  Your focus as a controller will most likely not extend to bottlenecks on the factory floor, although I am sure some controllers with specific knowledge of their industry may become involved.  But generally speaking, ‘Think Like a Consultant!”  is dedicated to administrative work flow, including (but not limited to) working capital, cash flow, inventory, AR and AP required improvements.

Consultants are generally brought in because management has identified a problem.  Possibly the accounting firm conducting the annual audit has identified a weakness in internal controls.  Or, as I stated in Part I, there may be some kind of morale problem which is usually not in a controller’s power to fix.  Sometimes consultants are hired to help a company achieve economies of scale.  Below I am going to present TWO scenarios that you, as controller, may encounter.

SCENARIO I –

Background: You work for a privately owned company with 45 separate retail and wholesale  facilities.  You are the controller for the company and work in the corporate office.  You have been with the company for just under a year.  The owner is not happy.  He has just discovered that a duplicate payment has been wired, each for $100,000.  He asks you ‘how could this happen’?  You tell him you will investigate.  You go straight to the Accounts Payable department and ask how this happened.  Everyone in A/P is stunned.  This is the first time they have heard about it.  You say, ‘I need an answer right now.  I have to report back immediately’.  The first thing the A/P department does is pull the vendor file.  There are two bills for $100,000 each.  Both are dated the same date, same invoice number, same amount.  One is obviously a duplicate.  All the proper approvals are present.  It is obvious what happened.  The vendor submitted an invoice directly to the corporate office and it was paid.  No Purchase order had ever been assigned.  The payment was made on the last day of the month.  The vendor did not receive payment according to terms and their system generated a duplicate invoice which was mailed to your company.  It happens.  You explain to the owner what happened.  Oh, by the way, you have already called the vendor and they are willing to wire back the money immediately.

You draw a sigh of relief and report back to the owner.  He is satisfied.  You go back to work.

Does this sound familiar to you? 

 

SCENARIO II –

Background:

You work for a privately owned company with 45 separate retail facilities.  You are the controller for the company and work in the corporate office.  You have been with the company for just under a year.  The owner is not happy.  His Credit Manager has reported to him that at one of the wholesale sites, the manager shipped $225,000 worth of product to a single customer who had no approved credit.  The customer had promised to pay the store manager as soon as he received payment for the merchandise to be resold.  The entire balance is comprised of only one product.  A very high dollar specialty product contained in small bottles.   As controller, you are responsible for managing interim and final year end inventories.  The product was shipped over a small window of time at least eight months ago.  The owner wants to know how you missed what would have been an obvious inventory shortage.  You tell him you will investigate.

Obviously, the manager has violated the most basic of internal controls, failing to enter the shipments into the company’s computer system.  Furthermore, the manager has violated basic credit policy.  Subsequently the manager will be written up and placed on probation.  During your investigation, you discover that the count team assigned to that location was given a physical inventory count sheet which had the names of all the products that should be located at the wholesale site.  Next to the name of each product was a blank line and at the end of the blank line the correct Unit of Measure of the product based on how it is carried in inventory.  As is the procedure, the count team leader asks the manager to review the physical inventory count.  When the manager sees the specialty product line is still blank, he tells the count team leader that the product has been delivered but not invoiced yet due to a pricing dispute, so they should add it back to the count sheet.  The count team leader does not question this or notate this on his report back to the Corporate Inventory Department.  As a result, no shortage is shown. 

You report this back to the owner.  By now, fortunately the customer has sent a check for 50% of the outstanding balance of $225,000 and has promised to pay in sixty days.  The owner is satisfied with the outcome.  You draw a sigh of relief and go back to work.

Does this sound familiar to you?

As time marches on, the owner’s concerns grow about how well his company is being protected from risk.  And, that is when many owners call in the consultants.  All I can say to you, as the controller, don’t let this happen to you.  It may not end well.

Look at the two scenarios above.  Do you see anything wrong with how the controller handled the situations in Scenarios I and II?  I’d love to hear your opinion.  All of us who have served in the ‘Controller Army’ know that most days we are just putting out fires.  From the moment we walk in the door, all our plans made on the drive to work seem to fall apart.  You cannot be effective if you are in constant reactionary mode.

Next week, in Part III…………..we will look in depth at how documentation, checklists and an understanding of processes can turn you into an internal consultant.  By the way, a reminder.  The most important word in your ‘consultant’ arsenal is ‘Why?’.

THINK LIKE A CONSULTANT! – “HOW TO STREAMLINE YOUR COMPANY FROM THE INSIDE” – Part I

Companies pay a lot of money to hire consultants to help them reorganize or restructure their business.  Often ‘streamlining’ is the operative word.  Generally it becomes the CEO/President’s pet project.  Too many times, there is no buy in from subordinates, regardless of at what level they operate.  I’ve seen top managers and field office employees express a total lack of respect for what their consultants are trying to achieve.  Many consultants, no matter how much they are paid, really have no idea about what the company really does.  What the culture is like.  What the competitive atmosphere looks like.  But, consultants coming in from the outside, are more likely to have the ear of the company leaders.  Admittedly, some consultants are brought in because of low morale, excessive turnover, etc.  That is a response to employee concerns and behavior.  And, sometimes that’s for the best.  If the leadership won’t listen to the employees, maybe they need to be told that their behavior, failure to listen or pay attention to employees, is what’s driving the problem.

Another reason outsiders are brought in to streamline a company is often, employees are not in a position to see the ‘big picture’.  That means, they are not in a position to  see where a process both starts and ends.  It becomes very difficult to improve the process without that vantage point.  But it can still be done.

For Controllers, often they are in a unique position to take on the task of consultant, to think ‘outside the box’.  Have you seen the recent La Quinta motel ad about the consultant who ‘thinks outside the box’?  I’ll devote more of this series to the ad.  It’s quite a takeoff on business in today’s world.  All the buzz words that come and go.  But, thinking outside the box is a key quality that all good consultants must have.

For the past twenty years or so, most of the streamlining that I have observed is migrating processes from manual to computerized (or mechanized).  Software has unleashed the power of computers (and vice-versa).  We’ve gone from handwritten invoicing to computerized invoicing.  The amount of time and money that has been saved is immeasurable.  Obtaining your boarding pass from a machine rather than an airline agent saves customers time and airlines millions.  Don’t you head for self-checkout at Walmart when you have just a few things.  (They still need to improve their software).  Companies want to find ways to cut their single most important overhead expense which is labor.  Fewer airline agents, grocery checkers, secretaries and gone are the elevator operators and  switchboard operators.

So how do you, the controller,  train yourself  to think like a consultant.

 STEP ONE: OBSERVE 

Observation is the skill all consultants must have.  Note that I defined ‘observation’ as a skill.  It is the same as listening is a skill.  If you cannot take in your surroundings and ask yourself, ‘could we do this better? Faster? Smarter? Cheaper?  Then you need to learn how.

Example:  When my boss was promoted and given a whole new region to oversee (the region every manager wanted) I was dispatched to their head office with the following instructions ‘don’t change anything.  We aren’t going to make any major changes for at least six months’.  He was always very adamant about this and, although I was impatient to get going, eventually I saw the wisdom of it.

One day, as I sat in the manufacturing plant’s office, I saw an employee making hundreds of extra copies of invoices.  I asked her what she was doing.  Her answer was that they made copies (this was back in the day of manual invoices) of invoices because the home office wanted to have them on file and they didn’t have enough copies in the invoice set.  Therefore she made copies and mailed them each day.

Not only was this time consuming, the copier was churning out thousands of copies a month.

I called the Corporate controller.  We had a great relationship.  He was the most laid back guy I have ever known (and respected).  I asked him to find out why they needed these invoices.

Can you guess the answer?  It seems that they had needed copies years ago for some special record keeping exercise.  Now, the mail room just threw them away.

Why in the world hadn’t someone called down there and put a stop to it?  That was easy!

STEP TWO:  ASK

You must ask why.  Over and over.  (I know it drives you crazy when a toddler does it)  But it doesn’t change anything.  Enhancing your understanding is the goal.  One CAVEAT though.  Never change anything or pull the plug unless you know its total impact.

In truth, I was performing the task of a consultant who can sit and observe and then ask why.

STEP THREE: LISTEN

Observing and listening may seem very similar.  Observing is watching and interpreting what you see.

Listening is looking at the person who is talking.  Making a serious effort to understand and care what they are saying.  As you listen to each person in your office, over time, (sometimes a very short time) you will discern a pattern.  Maybe there is a bottleneck that no one will fix.  Maybe there is an employee busy intimidating everyone else.  And maybe their equipment (generally P.C.’s) is so outdated employees are putting in overtime to get the job done.  There are thousands of possible scenarios.  Learn what yours are.

Remember, you have a head start on most outside consultants.  You know the business, the employees, the inside information on why some things don’t get done.  Put all that to good use.

Next week, in Part II, we’ll discuss the tools you will need to clearly define the issues and solutions required  to begin the streamlining process in your company.  We’ll even talk about SYNERGISTIC INTEGRATION (watch for the La Quinta ad).

Are you listening?

Why Cash is Always King! – Part IV

In the past, I have heard some accounting people say that capital spending should not exceed your prior year depreciation expense.  When I think about that rule of thumb, I am not sure what difference it really makes.  There are many aspects to capital spending, some related to Sec. 179 of the Internal Revenue Code.  Under Sec. 179 some investments can be expensed in the current year.  However, you should always consult your CPA/tax preparer before making any capital investments based on Sec. 179.  The lease versus purchase is sometimes a complicated decision and is best left to a discussion with your CPA.

For any business owner, deciding whether or not to make a capital investment is based on two things.  The first is, does the company have the money or access to money that will allow the purchase?   Second, will it produce revenue directly or indirectly?  Is it a replacement item (your delivery truck is on its’ last leg and must be replaced) or an expansion (your current delivery truck can’t get around to all the customers on a timely basis).  When I was growing up, my father, an attorney, always drove a new car. He believed that clients didn’t want to hire an attorney who didn’t look successful.  Is that true anymore?  Do we base our decisions on how successful someone looks?

For larger companies, there should be a formalized capital projects processes and procedures. For instance , a request can be created, either on paper or electronically, for the capital item.  Information attached to the request ideally would  contain at least 3 bids/quotes.  Sometimes, the item is so specialized that there may be only one source for it.  The bid is then circulated to a group of approvers, generally the controller, CFO, President, COO, etc.  This keeps all members of senior management in the loop.  Once it’s approved, then a purchase order should be prepared. But all of the processes and procedures pale in comparison to making the wrong decision about a capital investment.  Strategic  capital spending is critical to the success and survival of any business.  The most important part is the justification process where there is a dialogue that thoroughly explores the need for the investment.  If you want more information on setting up a capital projects procedure, send me an e-mail at judith.sherling@cpa.com.

In closing my series on WHY CASH IS KING! I want to emphasize one thing.  You cannot save yourself into a profit.  Too many controllers and other management level people turn themselves in to penny pinchers.  That is not what cash flow management is about.  It’s about MANAGING the money available and making sure that dollars invested in inventory and fixed assets have been deployed to maximize income.  Remember, as controller or owner, you should always be able to answer the question ‘how much am I owed?’ and ‘how much do I owe?’.

Next week, I’ll start my newest series called ‘THINK LIKE A CONSULTANT – HOW TO STREAMLINE YOUR COMPANY FROM THE INSIDE’. 

Stay tuned.

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The TED Blog shares interesting news about TED, TED Talks video, the TED Prize and more.

Matt on Not-WordPress

Stuff and things.

Philadelphia Estate and Tax Attorney Blog

Philadelphia tax, estate, corporate, small business attorney providing IRS tax representation, estate planning & administration, small business, probate, wills, trusts, tax planning

WordCamp Central

WordCamp is a conference that focuses on everything WordPress.

Leadership Freak

Empowering Leaders 300 Words at a Time

Late Blooming Entrepreneurs

Making it big in business after age 40

Small Food Business

The Soup to Nuts Resource for Artisan Food Entrepreuers

FUEL LINES

A voice for private company controllers