Scenario Planning....

As a follow up to my post on forecasting, I want to share with you this useful article.  It is more important than ever to prepare "what if" scenario's as part of the planning process.  This can be as simple as taking a historically based forecast and moving key drivers up or down by a percentage range.  For example, what would happen to cash flow if revenues decrease by 5%, 10% or 30%?  What if our key customers increased or decreased business by X%?  What if our key cost inputs or vendors changed by X%?   After all, uncertainty is the new normal today.

Scenario Planning: Navigating Through Today's Uncertain World
Source: journalofaccountancy.com

Efficiency

Staying current with technology is one of the delights of my work.  The holy grail of technology for me is efficiency; how can I do what needs to be done faster, without compromising accuracy.  New software or upgrades are always exciting to me because of the possibility they hold for improvement.  Literally I’m looking for fewer keystrokes per task, among other things. 

 

This mentality started for me years ago as a mother of two young children; being at work meant being away from them and although I was confident in our childcare arrangement, I really missed them.  I trained myself to be more efficient simply for the joy of being home sooner.  What I didn’t realize at the time was that I could never go back to anything less than total concentration while at the office; it became a habit that has made work extremely interesting and fast paced for me no matter where I go.  

I am objective oriented not time oriented.    I am constantly assessing what needs to be done by when and marking tasks off my checklists; when objectives are reached I know I’m done and I fly out of the office.  Being objective oriented also means I simply can’t leave the office until I’m done with what I need to do, even if that means things have not gone as expected and I’m staying until 8 pm to resolve it.  That still happens now and then, but it is definitely not the norm.  

My unflagging pursuit of efficiency, which I achieve primarily through maximizing the use of technology, has had so many personal benefits that I can’t imagine working any other way.  The silver lining is that I am not a workaholic – I have developed many interests outside of my professional life simply because I’ve given myself permission to leave the office when I’m done, not when the clock reaches a certain time. 

The Joy of Learning…..

It’s the season for graduations and commencement speeches, reminders that there are concentrated periods of time in a person’s life for learning.  Learning is of course a lifelong adventure and today’s post is dedicated to sharing with you a few of my favorite resources for professional accounting excellence, in order of their importance and influence on me.  It’s not an exhaustive list by any means, but I hope you find something that peaks your interest and helps you learn something new.

The Controller’s Function by Janice M. Roehl-Anderson and Steven M. Bragg.

http://www.amazon.com/Controllers-Function-Managerial-Accountant-Corporate/dp/0470937424/ref=sr_1_1?ie=UTF8&qid=1306866181&sr=8-1

The Fast Close, Soft Close, Virtual Close: Now Days not Weeks, by Susan C. Longo, CPA

http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/FinancialManagement/Management/Controllership/PRDOVR~PC-731091/PC-731091.jsp

Just-In-Time Accounting, How to Decrease Costs and Increase Efficiency, by Steven Bragg, CPA

http://www.amazon.com/Just---Time-Accounting-Decrease-Efficiency/dp/0470403721/ref=sr_1_1?ie=UTF8&qid=1306866462&sr=8-1

Accounting Desk Book, the Accountant’s Everyday Instant Answer Book, by Tom. M. Plank and Douglas L. Blensly

http://www.amazon.com/Accounting-Desk-Book-Ruffner-Plank/dp/0808022032/ref=sr_1_4?ie=UTF8&qid=1306866518&sr=8-4

Creative Cash Flow Reporting; Uncovering Sustainable Financial Performance, by Charles W. Mulford and Eugene E. Comiskey

http://www.amazon.com/Creative-Cash-Flow-Reporting-Sustainable/dp/0471469181/ref=sr_1_1?ie=UTF8&s=books&qid=1306866597&sr=8-1

The Accountant’s Business Manual,  by William H. Behrenfeld, Sidney Kess and Barbara Weltman

http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/InternalControls/SOX404/PRDOVR~PC-029418/PC-029418.jsp

The absolute “bible”  for all accountants, The Journal of Accountancy, published monthly by the AICPA.

http://www.journalofaccountancy.com/

Maker vs. manager...this post resonates with me

http://sethgodin.typepad.com/seths_blog/2011/04/why-makers-should-think-a-little-bit-more-like-managers-and-vice-versa.html

I love Seth Godin's ideas because I'm not a marketing guru and he is.  This particular post resonated with me because I am definitely a "maker" as Paul Graham describes it.  How do you work?

Planning for Success – Every Business Needs a Financial Forecast

Although it can be exhilarating to take a detour on a vacation and explore the world with no particular destination in mind, meandering without a plan isn’t a good business strategy.  Successful businesses are actively engaged in planning on a constant basis, and today’s software makes it easier than ever to forecast and model all sorts of assumptions and scenarios.  I’ve developed many financial forecasts over the years for clients, ranging from near term cash flow forecasts to five year strategic business models.  Whatever the approach, the point is that planning is essential to business success.

Understand first, Model Second

I seek to understand the business in plain English first, before attempting to model it.  I sit with a variety of key people in the business and ask many questions.  How does this business work, what and how are we selling?  Where is the product or service we’re selling coming from, what is needed in terms of labor and materials, will additional space or equipment be needed, how about marketing and promotion?  Who are the buyers of the product or service and how long is the cycle from cash disbursement to provide the product to cash collection after delivery?  Understanding the entire business stream from beginning to end in a conversational way first saves hours of modeling time afterwards.  I’ve learned to ask many, many questions to understand the factors that will most impact the outcome.   I’ve also learned to involve managers from all departments of the company in the forecasting process; everyone really does have a different point of view and all are necessary and important to the business itself.

Managing Infinite Assumptions

There are numerous assumptions involved in any attempt to predict the future; more than need to be modeled, actually.  Product mix, volume and pricing are only the starting points.  The key to a workable and reasonably accurate model is to understand which assumptions will have the most significant impact on the outcome.  Pareto’s principal, known as the 80-20 rule or the law of the vital few, is useful for the forecasting exercise.  This means 80% of the result is driven by 20% of the inputs; e.g., 80% of our revenue is generated from 20% of our customer base.  Whittle down the assumptions to the handful that really matter; this makes the entire model much more useful.

The Forecasted Financial Statements

I always forecast a complete set of financial statements – balance sheet, income statement and statement of cash flows.  I have many supporting tabs, such as product specifics for mix and volume, headcount and other inputs.  With a complete set of forecasted financial statements, I can be sure I’ve considered all drivers of cash flow that come from the balance sheet as well as the income statement.  I recommend a very useful book, Creative Cash Flow Reporting, for ideas on alternate presentations and analysis of cash flow.

Measuring Results

A forecast is only useful if we can regularly measure ourselves against it over time.  Most accounting software allows the budget to be loaded into the software, so the reporting of budget to actual results can be automated in the report writing feature of the software.  Being able to react to actual results that are behaving differently than expected is a critical reason to prepare a forecast in the first place.  

Timing

For most of my clients, I set up simple processes to measure actual to forecasted sales on a daily basis, with weekly and monthly summaries.  Cash is the same; measured and reported to key decision makers daily.

The comparison of the complete financial statements is done monthly, usually by the 5^th - 10^th day after month end.  Developing a consistent timeline and report format is critical to making the information useful to decision makers.

Remaining Flexible

The reality of business is that new ideas come up suddenly and require quick action.  A new market opportunity presents itself, an acquisition bubbles, market share can be expanded based on changing external factors.  It is critical to be able to quickly assess the possible financial impact of various outcomes, given changed assumptions.  When a business already has a good forecast modeling process in place, it is a simple task to save as a new version and model changing assumptions.

So enjoy your next road trip and allow yourself to drift off the beaten path to explore unexpected surprises.  When it comes to your business, however, planning really is the key to achieving your financial goals.

Building vs. Running....

I proudly announced to my digital native 16 year old daughter that her mother now "had a blog!".....albeit a business blog (ho hum).  I encouraged her to take a look, so she could see a bit more detail about what I do.  Her immediate response?  "I know what you do, you fix things that are broken and clean everything up".  Ah well, I guess she really does know me.

The point of accounting is to provide accurate and timely information to decision makers.  That and handling the cash correctly.  By timely I mean as close to real time as possible.  So, quite simply, the start of any new assignment for me involves quickly getting cash management and reporting under control and shortening the reporting cycles while improving the quality of the information being reported.  

I like to think the accounting world is made up of "builders" and "runners".  Builders like to, well, build things.  A builder starts at the beginning of any process and maps out the critical path, noting what happens at each significant point along the way.  Then she automates it, or as much of it as possible, and creates the daily/weekly/monthly routine to run the process successfully.  This process involves asking a lot of "why are we doing it this way?" questions and stripping out as many unnecessary steps as possible, always keeping internal controls in the forefront of her mind to create a reliable and reasonably secure process. 

Running a process is also important and just because my personal preference  is to build, that doesn't mean running accounting processes is less significant.  Quite to the contrary, it is one thing to build, paint and polish the sailboat and quite another to actually sail it.   When we start our accounting careers, no matter where, we start as a runner.  Entry level positions always involve executing existing tasks and processes.  It is by running systems that we learn what works well and what doesn't, evolving us into builders (or really expert runners - many of whom I have met and learned from).

I use 90% of what I've successfully used or learned elsewhere to get started on each new engagement and my new personal challenge is to see how quickly I can turn it around (used to be 3 month end cycles, now it's 2).  And I always meet incredible people at each new client who teach me new things.

So are you building the boat or sailing it today?

Do I need a controller?

The following chart shows the various types of business and their typical need for a controller:

Business Type	Is a Controller Needed?	What works Best?
Sole Proprietor owner/operator	No, a bookkeeper and a tax CPA is all that is needed
Sole Proprietor with 5 or fewer employees, under $5 million in sales	No, a bookkeeper and a tax CPA is all that is needed
Private business with between 5- 50 employees, up to $10 million in sales	Yes, this is ideal for a part-time, outsourced controller, in addition to bookkeepers and tax CPA's.  Other finance resources can include an audit CPA and a valuation specialist if stock options are issued.	Outsourced Controller is ideal here
Private business with more than 50 employees, more than $10 million in sales	Yes, this business needs a full time controller and typically also a full time CFO, in addition to a larger finance department staff.	Interim Controller can be used here when needed
Public company of any size	No.  Always needs a full time controller and CFO, as well as an SEC reporting manager and other internal audit resources.  Being a public company dramatically changes the finance operations.	Interim Controller can be used here when needed

Attributes of the ideal outsourced controller

Credentials –The number one attribute of the ideal candidate is an accounting degree with an active CPA license, preferably with big 4 audit experience of five years or more.  An active license means they are fulfilling the 40 hour per year continuing education requirement – you want someone committed to lifelong learning.  

Experience – Being highly experienced in all aspects of running a finance department is critical.  An experienced outsourced controller can clearly articulate their approach towards designing and streamlining transaction processes, has clear month end close checklists and balance sheet account reconciliation procedures and has an exceptional ability to view other department heads and senior managers as their customers – meeting their information needs with timely and accurate reports.  Reporting not only refers to the ability of the controller to produce the balance sheet, income statement and statement of cash flows (historical and forecasted), but extends to reporting on performance, sales and various operational metrics.  

Personality –Finance is simply accumulating the results of all other company functions – interacting well with everyone from purchasing, materials management and the supply chain, to human resources, customer service and the sales force is absolutely critical. 

Technological savvy – This is the magic that allows any controller - outsourced or not, to be 50% more efficient than their less tech savvy counterparts.  The IT folks are a controller’s best friend and your ideal outsourced controller is a computer super user and loves technology of all kinds.

 

Objective rather than time focused –Knowing what the objectives need to be is the first step; being focused on only those objectives is critical to efficiency in the controller role.  The person who spends 40 hours a week at their job will either complete the job in that time frame or think of things to do to fill that time.  An objective oriented outsourced controller only stays in your office long enough to complete the tasks; this person has other clients and has no interest in lingering for the sake of spending time.  In the interview process this quality can be difficult to ascertain; rely on prior client referrals to determine whether your outsourced controller candidate can truly be more efficient than a full time resource, based on an objective rather than time orientation.

What is an outsourced controller?

There are certain business types that are well suited to using an outsourced controller in lieu of hiring a full time employee.  Knowing the attributes of an excellent outsourced controller will help you make this organizational choice a success.

What is an Outsourced Controller?

An outsourced resource of any kind typically refers to a person who is not a full time employee of the Company, instead working less than full time and being paid as a 1099 supplier.  

Unlike an interim assignment that usually has a start and end date, hiring an outsourced controller is typically an open ended engagement that provides for a consultant to act as the Company’s controller.  These are often 1 - 3 day per week assignments rather than full time.  There are several key reasons this type of arrangement is more beneficial to a Company than hiring a full time controller.

Benefits of Outsourcing vs. Hiring

The number one reason a Company chooses an outsourced controller over a permanent full time employee is to not only spend less money on this role, but to make that spending a completely variable cost.  Hiring an outsourced person for two days a week means you can hire a much higher caliber of candidate than you may be able to attract (or afford) as a full time employee.  Because this outsourced person is much more experienced, you will often see savings in other service provider fees, such as audit and tax, because the outsourced controller knows how to negotiate with and manage these resources.  Finally, you will elevate the learning environment in your organization by bringing in a high performing outsourced resource who instinctively teaches others how to make their tasks more efficient and effective.