It is Not Bureaucracy!

“I am totally fed up with the way things are working!” shouted the irate officer of a XYZ dept.” I am telling my guys to be able to be within budget, not to have too much of work sitting on the desk for ever and have the paperwork finished before the audits.” The officer continued complaining about how he is disappointed that utility bills are soaring high and copy machine and stationary expenses are not even being counted, he went on grumbling about the take it easy attitude of the office staff and literally was bashing up everyone in the department for the expenses being incurred.

What struck me was that the accounting department was not doing its share of work in a systematized manner, or should I say systematised! ;) Even though the ABC company was their client, and they had to sub contract their job to Does It Better company because the kind of work the ABC company required was offered by the DIB company technicians, XYZ ended up paying more bills to DIB than what it charged ABC.

ABC needed assembling of some ten units of machinery for its plant. These machines were subcontracted to DIB, because they had workforce that can contribute to an early completion of the project. XYZ, without estimating the time it may need to charge ABC, offered a very penetrating price at a high bargain, and was attracting clients. The problem was that its clientele had to be catered by subcontracting to the nearby small businesses that were operating on a contract basis and were not offering free service, of course, naturally. The raw material the sub contractors got was sometimes bought in wholesale to cut the cost, for any typical assemblage of parts. However for specialized products, they would even go an extra mile and get it from a different sub contractor who had the required material and would then assemble it. It had to pay for its cost, its labor and mark up to cover other general and administrative expenses. So the budget was hiked, because they did not anticipate a totally unique machine part that was not bought in bulk and they had to.

XYZ Company dealt with several such clients and their subcontractors, as it was the parent company in utilizing the manpower that was around the neighborhood where productivity could be organized. They were not technical people per se, but had plants in the network, that can offer services, and have the products delivered to the clients fulfilling their requirements. It also paid for all the stationery, copying and printing charges to document each client and had accounts department oversee their progress. XYZ in turn was billed for the services it subcontracted where the over heads were very high.

What XYZ should have done was ask for an itemized bill for each activity, how much time was spent in assembling the parts required for ABC and all the rest of the companies individually and itemize them accordingly for each and every company it subcontracted so it would not end up in paying utility bills, stationery and office expenses for others. If ABC project took 10 man hours plus, 10 hours of utility bills it had to be divided accordingly. Also all projects cannot have same billings. If project A2B is different but DIB is charging XYZ a bill for each of the company’s requests in one single invoice and not itemize it, it is for XYZ to determine the costs based on accounting of individual tasks and not just let the employees sleep over the paperwork unfinished. True it involves a team of experts to handle the bills, and the expenses it incurs in paying for the team members also has to be distributed equally to all the clients, individually based on the amount of time it spends for each client. It should have a list of tasks accomplished, time spent by each responsible person who was part of that team and their pay rates and all the expenses covering the manpower, utilities and office expenses should be based on that data.

It is the Activity Based Costing method that the XYZ Company should adopt, instead of some vague number to buy quick clients and end up in losses. This allocation of costs is based on services and costs based on what was contributed in the projects. Want to learn more? Why not join my alma mater and register for Finance classes and accounting classes along with management and marketing? It is not bureaucracy it is meritocracy! Happy MBA!

Crisis Management: Money Matters

“Jiji, I have a problem” said Roger. Jiji said “ok, what is it?”


“I am in big trouble: I had lost one of my businesses I was managing because the payments have not gone in time.” Roger is into management of businesses. He is very good at communicating and talking to people, showing them businesses they could be interested in and enabling them establish their businesses. He helps in managing their businesses on their behalf of day to day management of repairs and maintenance, procurement of inventory, payment of current liabilities for the businesses. He had an Office Assistant who was very capable for some time and trusted everything on that person. They worked efficiently as a team. Roger used to take care of business in talking, meeting people and communicating and contacting them and his Assistant was helping in taking care of payments and books. Suddenly he found that he was in deep waters as the payments were not being made in time and business dealings were not being enabled because of that. He was in a very crisis situation as those clients did not want them to manage their businesses since they were sent collection and legal notices and had to pay liabilities as a result. This is crisis, but can be worked out, with diligence.

Crisis Management is an important part of business management. What would you do if for some reason you are trusting too much on some one person in your business and to get more business contacts, you participate in marketing and public relations activities? You not only allow the Office Manager/ Secretary/ Accountant all in one person, as yours is a sole proprietorship to take care of business dealings but you give them ability to write checks on your behalf for the company. One fine day, you find that the checks have not been entered in the books, and payments have not gone out in time. The Office Manager/ Secretary/ Accountant all in one person are in fact busy with other things. May be someone in their family needs care or may be that they want to keep busy chatting with their spouse/ mate/ loved ones, may be because they need attention, or simply that priorities have changed and they want to be attentive to something other than office work. What would you do to handle a situation as this, better still, what could you do to avoid this inconvenient situation ever arise and be protective of your company?
Itemize all the responsibilities that are required and make a weekly checklist of things to do. Regroup activities that you are busy with and involve yourself in the monetary well being of the company. Check your accounts on a day today basis. Watch over your accountant to see if the books are up to date. Make it a point not to allocate the duty of issuing checks to the same person who deposits the money. Take responsibility in sharing the business activities. Make sure you have the back up data of all transactions recorded and also access to all your accounts. Review the progress every day or every week with your Accountant and keep asking questions you need answers, such as who has paid and who have not paid from your clients, what bills are due, and have arrangements made for the payments to go? What is the amount in the bank? What amount is available after the checks have been issued and do the checks overdraft the account in any way? Have all the services been provided to the clients? Have you included the services offered in the invoices to the individual clients? Have the records been updated to reflect the current status of the transactions? If you need to report to your business board about the developments and progress, make sure you have data of open invoices, profit statement, balance sheet prior to the quarter and after the quarter, and if you need to submit human resources data, make sure you report it in time.
Roger hired a different person who could handle things efficiently, attended the board meeting and explained them that he was to blame it also because part of the blame goes to him as he did not pay close attention to the needs of the clients who were trying to reach him, and did not watch the transactions very well. He told them he is back in business as the new bookkeeping already showed evidence of improvement as the bills were entered and invoices being sent in time. Also, the payments are being made in time; the only current liability that is due is payment to himself as he only took half of what he gets paid every month. He is going to be on ninety days probation by accepting only partial payment and making sure that all the business dealings are kept up to date. The board members asked several questions relating to the maintenance of their businesses as well as bookkeeping. Finally, the board decided, it is time to give a try.

Cash Flow problems? Watch out what you have!

My friend came to me the other day and started discussing about the problems in their business. He said he is paying too much on everything and by the end of the month he finds that he is not having so much profit after all. I asked him what his business was, and he said he has an optometry business.

"Cool, then how is it that you have problems?" I asked him.
 He said he trusted too much on those around him!
 "That is good isn't it?" I asked him.
"Yea, it is to some extent so long as you do not get into losses."
"Well, explain me," I asked.
He began narrating his troubles. "I have my receptionists in the front office who take care of the appointments. Many times I stay with not much of work on days and they leave pretty early. You know I pay salaries and not wages. So, I am not sure if they preplanned in taking an off day so did not give any appointments, and I do not take walk-ins" he took a pause and continued again.
"I also have my lab charges too high. I am not sure if I am paying them so high myself or others are also charged similarly. My lab technician charges exorbitantly and I cannot keep low prices for the final product. What can I do? Also as I am going in my business, there are low sales and more expenses" he said.

Did this situation ever occur to you in your business?
What do you do if you find troubles as this?
Have you watched what you have to begin with?
What is the percentage of sales in your business? What is the percentage of costs? Are the costs having high percentage compared to prices? Did you know if the sales are being reduced for any reason? High cost percentage may mean either the sale price is too low or the retailers are not efficient. In this case perhaps there is a high margin of what the lab technician charges or sales person quotes. Are the percentages of salaries too high? Do you know if the company is overstaffed or may be a few people are taking high salaries or commissions?

These and many more problems of cash flow can be identified by reviewing your Financial Statements and contacting a consultant for your business health. By the way are you one of those business owners who do not keep track of working capital and end up in paying too many overdraft charges for the banks? Watch out what you have at the beginning of the month and deduct every automatic payment and checks you issued before you charge the card or write another check!