Good Morning Controllers

Let’s begin ‘The Everyday Controller’ talking about an everyday problem.  Most of us became accountants because we liked accounting.  Managing personnel wasn’t on any curriculum I saw while working on my degree.  But for  most of us,  it’s the most time consuming and sometimes frustrating part of our jobs (at least where I work).  There are the people you inherited, the people you hired, the people you wish you hadn’t hired.  Working for privately held companies, there is even the spectre of family members you must deal with.  With respect to Accounting, I choose to take the high road.  We assume that everyone in accounting is a professional regardless of their education, certifications, etc.  This includes staff with high school +some training.  Our focus is on the work.  If the work is of good quality, arrives on a timely basis, if the employee gets along with others, we don’t concentrate on the little things like attendance records, getting to work on the dot of 8:00 a.m., etc.  We pride ourselves on being a flexible and family friendly workplace.  But, when the work shows a lack of professionalism, or behaviors get in the way of work,  then it’s time to talk.  We put a very high value on low turnover as the learning curve in our Corporate headquarters office is steep.

We invest a lot of time in getting employees trained whether in accounts payable, month end close work, inventory, etc.   I can think of no other challenge greater than managing and coaching our staff members.  What do you think?

The Top Ten Things that Will Get Controllers Fired!

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10.  Controller does not pursue self-improvement by attending classes, reading periodicals in their field.

9.    Doesn’t care anything about learning the Industry they are working in.

8.    Lacks the vision to implement improvements in accounting systems, processes and procedures.

7.    Fails to develop or mentor staff and often feels threatened by subordinates.

6.    Arrogant

5.    Fails to grasp the importance of Fast Closes and producing Financial Statements on a timely basis as defined by management.

4.   Always puts personal needs ahead of company’s needs.

3.   Does not ask questions or seek support from their system’s software vendor and outside accounting firm.

2.   Is seen as ‘in over their head’.

And NUMBER ONE REASON CONTROLLERS GET FIRED:  The CEO, CFO or Ownership of the company does not trust and/or respect them. (The reason is immaterial).

 

ARE YOU A SCALABLE CONTROLLER and what exactly does that mean?

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A few years ago I began seeing the word ‘scalable’.  It  generally referred to whether typeface could be enlarged.  But today ‘scalable’ means a great deal more than just that.

From Wikipedia:

Scalability is the capability of a system, network, or process to handle a growing amount of work, or its potential to be enlarged in order to accommodate that growth.[1] For example, it can refer to the capability of a system to increase its total output under an increased load when resources (typically hardware) are added. An analogous meaning is implied when the word is used in an economic context, where scalability of a company implies that the underlying business model offers the potential for economic growth within the company.

We talk about businesses and how they handle growth.  Some businesses prosper in a growth mode and others self-destruct under the weight of too much business.  For example,  you opened a store on ETSY.  You sell just one thing, crocheted dolls.  It takes you one day to make each doll.  Your opening inventory is 25.  Day One you receive orders for a 1000.  You don’t have enough money to buy the yarn for 975 dolls or the time to make them and customers won’t be charged until you ship.  This is the most basic definition of ‘scalable’ (or not) in a business sense.

Recently on a Linked In Group (FSN) that I love participating in, someone wrote in about how to develop a program of study for a new role he was assuming at his company (a very large and well known one).  He is obviously intelligent and recognizes the need for learning all there is to his new role.  He is on the right track.

If you are a CPA you’re required to earn 40 CPE hours a year (at least in my state).  If you attend classes (in person or online) are you just going through the motions or are you selecting classes that will enhance your knowledge?

The entire point of this dissertation is to get you to look at yourself and ask ‘Am I still relevant’?  Warren Buffet is in his eighties but no one thinks of him as less than relevant.  This is not about your age, but your abilities.  Who wouldn’t want a seasoned professional on their team if they bring a lot of experience and forward thinking to the table.

Below are ten questions you need to ask yourself to determine your scalability.  We all should know what a passing grade is.

  1. How many newsletters, journals, magazines related to Controllership, Management Accounting, Finance and other related subject do you subscribe to?
  2. Do you attend CPE classes or other classes even if you don’t have to?
  3. Are you working on a designation such as CPA (Certified Public Accountant)  or CMA (Certified Management Accountant)?
  4. Do you have a Linked In account and, if so, do you belong to groups of accounting and finance professionals?
  5. If they are close enough, do you belong to any accounting Chapters?
  6. Do you spend time improving your Excel skills?
  7. How many accounting related books have you purchased in the last year? Whether you or your company paid for it.
  8. Are you a member of AICPA or IMA ?
  9. Do you welcome new challenges in your position as Controller?
  10. Are you passionate about accounting?

Let’s create another scenario.  Lately at the office there have been a lot of closed doors and whispering coming from the CEO and CFO’s offices.  They seem to be gone more than ever or always tied up on conference calls.  Something is going on but they may choose not to bring you into the loop until further down the road.  Fast forward…..It’s Monday morning and you’re getting that first cup of coffee.  The CFO passes you in the hall and says ‘I need to talk to you, bring your coffee’.  What he tells you is that the company has made a commitment to acquire 25 locations, thus doubling the company’s size overnight.  Are you scared? Excited? Angry?  How you react is going to determine your future.  If the CFO views you as weak or not up for the challenge, he and the CEO are probably already putting out feelers to replace you.  If that’s the case, it is almost too late.  Do not kid yourself.  You better start thinking about how you are viewed in the C-Suite.

Make no mistake…………..this is a serious issue.  It is the difference between surviving or failing at a company with a bright future.  As a consultant who has seen the demise of more than one controller, I can tell you that there is definitely a common thread between them.  Next week, I’ll write about those in my  ‘THE TOP TEN MISTAKES THAT WILL GET A CONTROLLER FIRED!”.  Stay Tuned!

 

 

 

WHY SALES EXCEPTION REPORTING can pay for itself! – (Part II)

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If you did not read the blog post last week regarding the Sales Exception Reporting mechanism, please go back and read it now.

We ended our discussion last week by stating that for the Sales Exception Report to work you have to set certain criteria.  In most large companies with a big product ‘catalog’ they have some kind of grouping.  Let’s take a cosmetics company.  They will group their product as follows:

  • Face
  • Lips
  • Eyes
  • Hair

You might call these ‘departments’ just as you would in a Department Store.  So let’s set up our report as follows:

  • For ‘Face’ Department show all sales with Gross Margins less than zero or greater than 50%.
  • For ‘Lips’ Department show all sales with Gross Margins less than 5% or greater than 30%
  • For ‘Eyes’ Department show all sales with Gross Margins less than 2% or greater than 60%.
  • For ‘Hair’ Department show all sales with Gross Margins less than 0% or greater than 25%

Now we have the parameters for our new report.  For some, you may need to ask your software vendor to design and deliver the report.  You may be able to build an Excel spreadsheet that can handle it but a hard coded report is preferable as long as it is not cost prohibitive.

Accurate cost of goods sold per unit of measure of product is critical.  If you don’t have an accurate and reliable (not perfect) costing system, the report will not be effective.

In reviewing your report, you are looking for two things:

  • Is the cost right
  • Is the Selling Price Correct

Compared to fifty years ago when prices did not change from day to day at the grocery store or the gas station, prices were much more stable.  But now, even with the technology that allows price scanning (UPC Coding) we believe we are keeping up.  But a price scan depends on what a human being entered into the system somewhere along the line.

Who among us has not been to the grocery store or a big box hardware center and seen the price ring up incorrectly.  The item has been put on sale based on the signage where you picked it up but the sale price has not been entered.  Conversely,  prices increasing the Selling Price may not have been updated.  Someone needs to monitor how items are being priced and more significantly, losses that may be generated through bad costing or errors in unit sales price.

Sales Exception Reporting is the essence of ‘Management by Exception’.  Not looking at everything but just those things you defined as outside the expected result.

If you have any questions on this topic, please feel free to contact me.

WHY SALES EXCEPTION REPORTING can pay for itself! (Part 1)

Following up on last week’s blog, ‘What is my real Net Cost’, I wanted to discuss how Sales Exception Reports can be utilized not just for analysis, but to catch what could be substantial billing errors.  (See example spreadsheet below.)

While many Controllers sift through stacks of reports, how many can find Selling Price errors that, if corrected, could stem further losses.  During my career with a publicly held company we were so fortunate to have some very smart people, programmers and developers, who understood accounting and the needs of the Sales Division.  One of the very best sales management tools they developed was a report issued weekly that looked at product sales, by invoice line (remember, as discussed in the previous post, you must be engaged in transactional posting).  It then compared the unit selling price to the unit cost of sales.  Further it generated a column for Gross Margin Dollars and Gross Margin Percent.  Remember, there is some setup work for a report like this but it is based on simple queries that most programmers could easily create to generate this report.

Let’s look at a a couple of simple  examples:

Example 1:  We have a new product……………Mops.  We paid $3.97 for the mops and sold them for $4.50 with a Gross Margin Percent of 11.78%.  Does that meet the company’s expectations of profit for that product?  The Sales Department should know the answer to that question.  But the question needs to be asked.

Example 2:  The Sales Department was successful in promoting sales of pails this month.  They were budgeted to sell 115 and sold 129.  However, much to the Sales Department’s dismay they actually lost money on the sales.  The Sales Exception Report tells them that they purchased the pails for $2.01 each and sold them for $1.75.  The scenarios leading to lost profits can be many.  Here are some of them:

  • The Selling Price is incorrect.  Someone incorrectly keyed it into the system
  • The Cost is wrong.  It’s possible that the P.O. for the pails showed $1.01 and the Vendor charged $2.01 (we all know that happens)
  • Freight cost was not considered.  Freight is one of the most confusing concepts within a lot of inventory and accounts payable groups.  FOB, Prepaid, Freight Allowance, etc.  If your P.O.’s don’t properly record the freight cost, if any, it will lead to costing errors.

Properly designed, the Sales Exception Report can lead to some serious cost savings.  When I recommended using the report to the owner of my company (a large privately held enterprise) he invested in having the report designed for him.  His comment, ‘it almost paid for itself in one day’.

Some of you may have access to these reports.  But what makes an ‘Exception’ Report?  Many of you may have seen Invoice Registers during your career.  The reports came in and there might be 500 invoices to pour through to see if everything looks right. (What if there were 1,000 invoices to review?) Then we moved into the era of ‘Management by Exception’.  Instead of looking at the good and the bad, let’s just look at the bad.  Who decides what’s bad?  You do.  Your Sales group does.  Owners and Executives will.

So, take a look at my simple example created in Excel.  As previously stated, the Sales Exception Report probably should be generated through a set of queries reduced to a well designed report.  It is not meant for Excel.  It really is part of your data analytics management.  Thing Big!

Next week, we will discuss setting criteria for your report.  No criteria and the report becomes an Invoice Register once again.

https://onedrive.live.com/redir?page=view&resid=2962BCBB16FDD425!1662&authkey=!AFsGbYilU2AGMOc

The Mystery of ‘WHAT IS MY REAL NET COST’ and how to solve it….

Image result for product costing template

 

I am a member of the Linked In group ‘FSN’.  It is comprised of accounting and finance professionals from all over the world.  How amazing that a Controller in South Africa may be struggling with the same problems a controller in Georgia struggles with.

So, let’s talk about one of the most challenging topics of all.  ‘What is my real true cost of product ‘x’?’ There have been thousands of pages, posts, classes, books written on costing.   Job costing software is challenging but if not set up properly is a waste of time and money.

Don’t forget that the true cost of the products and services you sell must be defined in order for selling decisions to be made, especially in industries with very fluid markets.  Cost really matters. Many of these industries sell commodities like food, where the market moves several times a day.  Knowing the real cost is critical to measuring profits.  The question is HOW DO WE ARRIVE AT THAT NUMBER? How would I?

  1. Remember, accounting is as much art as it is science.  If it wasn’t we wouldn’t be arguing as much as we do on how to get to the correct numbers.  There are many and varied philosophies about the proper method of cost accounting.
  2. Legacy systems and costing methods may be outdated, especially if you inherited it.  If you did not develop the system, you need to understand how costs are applied.  Perform your own due diligence on the cost system and methods.
  3. Form a ‘Cost Advisory’ group which includes your staff accountant(s) and managers from the production side and put them to work exploring whether costs make sense.  The advisory group must become experts on cost.  Have them review Monthly Costing reports to be sure the costs make sense.  Next week’s topic will be ‘Sales Exception Reporting’ .  With Sales Exception reports you can isolate where products were sold for less than their cost or whatever criteria you designate (less than 0% Gross Margin, etc).
  4. Do you have the option for Transactional Posting?  Some companies do not post by transaction.  But transactional posting is the life blood of cost analysis.  Without it, you are looking into a barrel of costs, none identifiable.
  5. Consistency is the key to meaningful cost reporting.  Maybe I should have put this as #1 but if your cost methods apply freight cost inconsistently you have a really big problem.  (I am referring to inbound freight). For example, companies that own their own trucks might not apply freight cost to product their trucks deliver to their inventory point.  The only freight added is when a third party carrier is paid.  I run into this from time to time and I can assure you, this is the wrong method.
  6. You must get into agreement with management on what costs will form the building blocks of your net cost by product.  Generally speaking, it is the indirect costs of overhead that are the sticking point.
  7. Finally, make sure you confer with your outside accounting firm and involve them in these conversations prior to making any major changes.

My recommendations to you are based on how I would approach a consulting project with a client who needs help determining his real costs.  Inspect the template I imaged for this post to further understand the vital need to know your cost.  And remember, “one man’s true cost can be another man’s garbage”.

 

 

 

‘It Never Rains on the Golf Course’ and other things to think about……….

Playing Golf in the rain

In a previous office where I worked, there was a print hanging on the wall that showed a golf course in stormy weather with the title  ‘It Never Rains on the Golf Course’.  What does this really mean?  Should we ignore the rain?  What if it’s lightning out there?  How am I to interpret the meaning of this? (I haven’t played golf since College).  So, please read below.

I’ve joined Groups on Linked In.  My favorite, FSN, is made up of finance people (Controllers, CFO’s, academics, writers from across the globe).  We post discussions where we ponder all sorts of accounting philosophies.  Right now we are talking about how to allocate overhead…..on what basis.  I know that for many private company controllers, this is a non-issue.  So is Sarbanes-Oxley and the Dodd-Frank Act.  But here’s my advice to you.  Widen your view.  Subscribe to accounting websites.  Join Linked-In and pick up to fifty groups you might be able to either learn from or contribute to.  And, it’s free.  Even if you are happy as a Controller, try to think like a CFO.  The more you know, the more effective you can be and, by the way, hopefully your opinion will have greater strength.

I know you are probably overwhelmed with e-mail articles pushing the ‘five most……….’ or the ’10 worst’.  It’s hard to escape.  But I still read them or at least review them.

Ask yourself this question, as a controller, ‘where am I weak’.  What do I need to work on?  I attend many CPE classes put on or sponsored by the AICPA.  You don’t have to be a member to attend (it costs a little more).  Attend a class on the latest developments in Internal Control or Compilations & Reviews.  Do not become out of date.

One of my most favorite stories that occurred at a business I know in a town near mine.  In fact, it was a Community Bank.  They hired an I.T. person.  They didn’t provide any training dollars for him.  Three years later they fired him.  Why?  He hadn’t learned to handle new developments in network engineering.  A lot of I.T. people I know connect with a lot of other similarly employed I.T. people.  Becoming irrelevant is a major threat to your job.  And by the way, IT DOES RAIN ON THE GOLF COURSE!   Too many golfers are just in denial.  Are you?  .

 

 

 

The Real Road to a FAST CLOSE………….really!

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There are books on the Fast Close.  There are seminars and webinars.  We come home with great pointers and ideas.  Now we are going to have internal financials produced on the fifth day after Month End.  But somehow we just never get there.  Isn’t it all just so frustrating?  If you are the Controller you are most likely on the front lines of the Month End Close.  Many controllers working for privately held companies end up closing various sets of books, sometimes including  truly diversified business types.  And, if inventory is involved, that adds another layer of complexity.  Here’s what I have discovered and learned observing CFO’s I’ve been associated with:

  • Consider issuing a set of Preliminary Financial Statements with the following caveats:
    • These statements do not reflect the following: (Example)
      • Depreciation Expense
      • Insurance Expense
      • Other Allocations
  • Review all your POST CLOSING Journal Entries
    • Can your software generate automated entries for the Month triggered by the Closing Process?
    • Are you making entries or reconciliations at month end that could be moved to mid-month as long as there’s 30 days between reconciliations?
  • Can you create a ‘CLOSING’ Team, even if it’s just you and one other person.
  • Do you have a MONTH END CLOSING set of Checklists that can be ticked off as processes are completed?

Start ‘GRADING’ your Closing team as a whole after the  FINAL Financial Statements for the period have been issued.

Then go through the same processes shown above next month and every month.  Continue to look for the ‘constraints’ that slow down the closing process.  Then do something about them!  And, as always, consult your outside Accounting Firm to be sure you are on the right track.

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