Did you watch Episode 1 last night of AMC’s new series ‘Halt & Catch Fire’?  It takes us back to the seventies and eighties amid the development of the desktop computer.  The ‘HCF’ (halt & catch fire)  command unleashed simultaneous instructions for programs to compete for superiority in the race to control the computer.  Ultimately, the p.c. became uncontrollable.

To say that there has been exponential growth in software and hardware development since then  is an understatement.  And somewhere along the way, it has become all about the software with hardware a secondary issue.

Looking back, I believe we are now in the fourth revolution of computing.  First, the invention of MS-DOS the Microsoft Disk Operating System which, as we all know, made Bill Gates a billionaire (and all of his friends too).  Second, was the development of a desktop size computer and chips  containing all the computing power of the old IBM mainframe computer rooms that would fit on top of your desk.  Third,  the evolution of software as it became the priority dictating what hardware you invested in.  And now we are entering into the forth revolution of the ‘Cloud’ and ‘Big Data’.

Why should controllers be concerned? Is there a lesson in here somewhere?  One of the greatest challenges for hardware developers back then was the lack of a common p.c. architecture.  Then, as now,  Apple went its own way starting with their GUI (graphical user interface)  computing system and then there were the rest, a host of different brands that may or may not have had a standard architectual design.  To remedy the situation, a group of seven companies in the p.c. industry came together to agree on a common design which meant that one could run the same software on different brands of computers.  That means that you can run your company with a hodge podge of Dell or Lenovo or HP computers.  Even clones for those left in that market.  What’s the point?  You can interface your computers because of those  pc architecture standards developed so many years ago.

I’m betting that there are a number of you out there who went to work in growing companies who had no purchasing policy except ‘least cost’ when adding p.c.’s to the network.  Lucky for you, that common architecture agreement which is still in place today eliminates some of the sin of buying just on price.  But ultimately, that can be costly.

As companies grow, the challenges of keeping up with computing needs are numerous.  I have my own personal story to tell about a huge challenge.  My company had a corporate HQ as well as numerous facilities doing very different things spread throughout our state.  Where the program was once locally installed on each computer, we migrated to installing it on our server.  This put pressure on our Terminal Servers.  The symptoms of something going wrong began to show themselves early on with repeated reboots at the remote facilities.  Within six months we were facing a crisis as the servers began to fail under the pressure of so many users logged on.  To remedy this, the company was faced with a needed restructure of the systems which would end up costing almost $250,000.  Essentially, we were catching up with several years of capital expenditures we had not felt necessary.  So here is my advice to all of you who are in charge of I.T. investment policy or involved at all in investment decisions:

1) Have standards – decide on which P.C. line makes the best sense for your business.  The same goes for printers, scanners and possibly other peripherals that might come into play.  If nothing else, hopefully you can push for volume discounts from your hardware supplier.

2) Set a ‘p.c. turns’ policy.  For instance, power users such as corporate employees may need to have their p.c.’s replaced every 2 1/2 to 3 years.  A remote user who does little work except online as they process transactions into the system could probably have a turn rate of ‘4 to 5’ years.  You will have to be the judge of that.

3) Even if you are ‘expensing’ your p.c.’s, printers and scanners, see if you can add them to your fixed asset ledger or, if not, an access database or excel spreadsheet to keep track of all of them, with the same basic information as appears in your asset ledger listing.  Be sure to show the name of the person assigned the p.c. and keep up with any transfers or employee changes.

4) Establish a 3-4  year capital spending plan that includes all hardware & software purchases necessary.  Be sure to include annual technology training costs.   Update it each year.  Share it with your CFO or CIO (if you have these people on board).

5) Maintain open and constant communication with your software vendor(s).  Be sure you are on top of their plans to for minor and major updates and upgrades.  One of the most serious consequences of failing to do this can be when they announce a coming upgrade along with the hardware requirements and only a small percentage of your p.c.’s are upgrade worthy!  We are talking some serious money here based on the size of your company.  This is why having a ‘turn policy’ is so important.  I believe that you should turn 25% of your p.c.’s and laptops and tablets annually (and that is a bare bones minimum percentage).

Remember – the advice given above is not based on your specific company and its requirements.  It is given as a guideline only and is not all inclusive.  I can’t emphasize how important any planning with regard to I.T. investment is.  The last thing you want in a thriving and growing business is for it to ‘halt and catch fire’ somewhere inside your I.T. infrastructure.




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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