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.

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.

Why Cash is Always King – Part III

Continuing on from Part II of ‘Why Cash is Always King’, let’s discuss what is referred to as ‘obsolete’ or ‘unsalable’ inventory.

Using the ‘inventory turns’ method of analysis, hopefully you have some idea of how you are doing. Buying inventory sometimes presents significant challenges, especially if you are in a highly volatile market. Volatile markets are often a challenge for companies that buy and sell commodities. For instance, a wholesaler providing milk and eggs to grocery stores faces prices changing every day. Sometimes those changes can be significant. National drug store chains sell gallons of milk as loss leaders. The small grocery down the road, they’re probably selling on the high side of the milk market. But no one wants to be left with unsold milk and eggs at the end of the day. Knowing how much to buy each day or each time can be key to reducing losses related to unsalable inventory (outdated milk and eggs).

Let’s look at a more common small to medium size business challenge. For instance, let’s say you are the Controller at ‘My Doll Shop’. Last year, Doll ‘X’ was a very sought after item and purchasing couldn’t even secure all the inventory you needed. However, a few weeks after Christmas purchasing had the opportunity to buy up a significant number of Doll ‘X’. But this year, little girls have their hearts set on ‘Doll ‘Y’. No one is interested in last year’s big hit, Doll ‘X’. My Doll Company is now the proud owner of some obsolete or slow moving inventory. One good thing about dolls, they are not perishable. They won’t rot on the shelves. But, you have dollars locked up in those dolls. Too many owners and managers simply ignore the problem because they have much more pressing issues to deal with. But if that obsolete and slow moving inventory isn’t dealt with, it takes up space. And, if the company is waiting for the Doll ‘X’ rage to come around again, they are probably in denial.

First, someone in your company, if not you, should have the task of addressing obsolete inventory and how to move it. Can it be sold on E-Bay? There’s work involved but E-Bay gets you a worldwide audience. Could you have a really big sale? I don’t have all the answers to this problem but ignoring it will certainly translate into losses at some point. Manage your inventory every day!

Oh, by the way, if you are the newly hired controller, and you’re working for a company that carries inventory, one of your first objectives should be to familiarize yourself with the inventory and, I would also recommend that at the end of the next accounting period (hopefully at the end of the month) you make sure that a physical inventory is scheduled. Once the inventory is completed, it should be compared with the book inventory to determine any gains or losses. And, very importantly, find out how much of that inventory is obsolete or unsalable. It’s far too often a neglected area of the company’s working capital investments.

In Part IV, the final post on CASH, we will look at FIXED ASSETS and the perils of both spending too much or too little.

Questions? Please feel free to comment, ask questions, or suggest other topics.

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