An Economic Tool Kit

Julie Shenkman
Posted by in Accounting, Auditing & Tax

The United States may be moving into its first real recession in 10 years - with a downturn in profits. To survive during tough economic times, businesses must refocus from the top line (sales) back to the bottom line (profits) - the ultimate indicator of business success.

As part of this refocusing, businesses should take a closer look at their daily procedures to find ways to increase profits. As trusted advisors, CPAs are key to this process and the most credible sources to help their clients and employees turn business and tax ideas into bottom-line results. By becoming bean multipliers instead of bean counters, they can ensure not only the survival of their clients but actually prepare them to be more profitable as the economy improves.

In an economic downturn, CPAs should examine their businesses from all aspects and then help develop profit plans that prevent cash and profitability from eroding. By encouraging them to take an objective look at their businesses and make tough but informed decisions, CPAs inspire their clients and businesses to take action and not be mesmerized by fear. They can turn financial ideas into financial reality by developing plans for increasing profits.

One of the key concepts in developing this profit plan is profitability, the skill necessary to identify financial opportunities and the ability to turn ideas into financial results. Profitability comes from training. Employees should be trained in profitability. Has this training been overlooked? Company manuals must address profitability. Meetings should focus on profitability. Employees should know they are responsible for improving the company's profitability.

CPAs can help establish a process or system in which employees are held responsible for generating ideas to improve profits. When employees are trained to look for new ways to make their departments and the company more profitable, ideas will come. For instance, imagine truck drivers who are profitable. Instead of just delivering building materials to job sites, profitable drivers will identify new construction opportunities in the normal course of their jobs and be rewarded for leads that turn into sales.

Increased profits enhance the value of any business and create more opportunities for everyone, from promotions, to greater compensation and benefits, improved working conditions, enhanced technology such as laptop computers for staff - the list is endless. Profit for profit's sake is not the goal. The goal is to generate sufficient bottom-line income to allow the business to seize opportunities that come its way and to make working conditions better for everyone. What are some other ways that CPAs can help their clients and businesses? Here are some proven strategies for increasing profits, productivity, and employee satisfaction.

Strategy #1: Systematically Increase Profits in Five Easy Steps.
When analyzing a company's current financial position, the questions to ask are if you feel comfortable with the status quo and if you are open to change. If you are not satisfied with your company's financial performance and are willing to modify existing business practices, the following steps will serve as a plan of action.

1. LOOK OBJECTIVELY AT UNTAPPED PROFIT OPPORTUNITIES. To improve the company's profit-generating capability, you need to look at its fiscal parts: · sales and marketing, · employees, · organizational structure, · operations, and · finance. If a firm is performing at peak efficiency, how do these components work? An aggressive marketing department stimulates product demand from new and existing customers and the sales staff converts the leads to good margin sales. Conscientious, long-term employees perform their duties efficiently and accurately. The products and services provided by the firm reach customers on time and exceed their expectations. Payments are promptly received, and vendors are paid within terms. Costs are held in line with your budgets, and a nice profit remains. Doesn't this scenario sound good? It should be the foundation to help a company reach its full profit potential and identify opportunities. It is difficult to identify all the variances from this model of perfection if you view the same scenarios every day in the same business for years. For a fresh perspective, bring together the company's management team to help identify proactive profit initiatives.

2. INVOLVE THE ENTIRE MANAGEMENT TEAM IN PROFIT RESPONSIBILITY. Ask the lowest level employee where the money is going during a profitable year, and in too many cases that individual will say that it's going into the owner's pockets. Unfortunately, people at higher levels of the company also sometimes share this view of corporate profits. Making profits is too big a job to be left to the firm's top echelon. Employees have to know what is in it for them. This is key to enlisting their involvement in your profit quest.

3. ELIMINATE DEPARTMENTALISM. A car dealer was not having a great year. Sales were strong, but profits overall were weak. Each department manager was evaluated for the department's profitability, and on paper, they were performing well and were compensated accordingly. When asked, "How are things going?" They universally replied, "We're having the best year we've had in a long time." These managers were focused on their department and not the overall corporation's performance. This situation was exemplified by the used car manager who had his inventory serviced in a garage down the street with a lower hourly rate than the dealership's own service department. Departmentalism is a cancer that can destroy a business. It's meaningless if a department is doing great when the company as a whole is not on strong financial footing. It is a CPA's obligation to continually send the correct signals to the management team and employees. Individuals and departmental performance need to be rewarded but not independently of overall corporate profits.

4. ERASE THE FEAR OF RETRIBUTION. You want the management team to become a profit team and help identify profit-making ideas. For this idea to work, no sacred cows can be permitted to interfere with the process. Every idea has to be prefaced with "for the good of the company." If someone has an idea that would be great for the company but might conflict with the opinion of someone from top management, the environment has to be safe enough for that individual to take the risk of raising a difficult issue. A company will stagnate if important and unpopular thoughts are left unsaid. You won't be able to gain the benefit of enlisting additional sets of eyes to help you identify profit opportunities if those eyes are always protected by dark glasses.

5. IMPLEMENT YOUR PROFIT IDEAS. The world is full of great ideas that never went anywhere because they were difficult to expedite. The usual reasons for the failure to implement ideas are that: (a) no one is responsible; (b) deadlines are unclear; (c) no means of measuring progress exists; and (d) priority is absent. Successful financial strategy implementation requires a process. Someone has to accept the project assignment; completion must be expected by a specific date; progress must be measured and necessary resources made available. Most importantly, there must be a system of accountability. If people are assigned projects that are to be completed on the 15th and 30th of the month, it is not unusual for the work to be done on the 14th and the 29th. If no one is responsible for monitoring progress, it is likely these deadlines will be missed. Without accountability, projects will keep slipping until everyone forgets them. Someone on the management team must be appointed as the profit activities leader, or PAL, empowered by the CEO to ensure ideas that have been developed by the profit team (rather than a management team) are carried out. With the unequivocal backing of the approved profit initiatives by the CEO, in conjunction with recognized rewards for results or consequences for lack thereof, your implementation process is destined to succeed. Companies that follow these five systematic steps will realize a noticeable improvement in the bottom-line. Empower your profit team. Demonstrate that there is something in it for everyone when profits reach their potential. Allow issues to come out on the table and institutionalize an implementation process to turn them into financial results. These steps have brought millions of dollars to the bottom lines of businesses.

The United States may be moving into its first real recession in 10 years - with a downturn in profits. To survive during tough economic times, businesses must refocus from the top line (sales) back to the bottom line (profits) - the ultimate indicator of business success.

Strategy #2: Measure the Effectiveness of Your Business in Critical Areas.
What you can measure, you can manage. Are you measuring the business' effectiveness in critical areas? Is there a profit plan to increase the organization's performance effectiveness in these areas?

Strategy #3: Help Management Build a Profit Team.
Your business or client's staff probably knows more about the day-to-day problems that chip away at the business' profitability than you do. They are also likely to be a wealth of information and advice about correcting those problems and offering other great new ideas for making the business more profitable. Ideas and problem-solving solutions will be lost unless a forum is provided for generating these new opportunities. Far better to build a management team into a profit team where each member can complete the statements: "I believe that profit is...I believe our people can... I believe our business is..."

Few managers make things happen, many watch things happen; far too many say, "What happened?" Profit teams make things happen that enhance the bottom line. Start out by asking each profit-team member for a written plan to improve your business. With management, put together a questionnaire that asks for suggestions to improve the company as a whole, a department, roles in the company, and customer service. The first ideas they write down may be the obvious ones. Invariably, the suggestions you take to the bank are the fourth or fifth ones. And they'll get even better if you have your profit team bring their ideas into a brainstorming session. There's no predicting what ideas will ultimately emerge from this process. You will learn a lot about the organization. The profit team will also start thinking in the right direction and that will pay dividends.

Try some of these brainstorming techniques. Be sure to tell people which of their suggestions were adopted, how they were put to use, and why others were rejected. Brainstorming is essentially a procedure to mobilize a group's creative resources to solve problems and develop opportunities. When properly thought-out, quantified, and assigned responsibility and deadlines, these ideas will provide the basis for a profit plan that will invigorate your entire organization. Here are the basic steps for brainstorming:

1. FOCUS ON PROBLEMS OR OPPORTUNITIES THAT NEED A REMEDY. Break them down into four areas such as: (a) ideas for making my job more profitable, (b) ideas for making my department more profitable, (c) ideas for making the entire company more profitable, and (d) ideas for making our customers more profitable.

2. YOU MIGHT WANT TO GET A CONFERENCE ROOM, A PROFIT COACH FACILITATOR FAMILIAR WITH BRAINSTORMING TECHNIQUES, AND A QUALIFIED GROUP OF CONFEREES. It is all right to include peripheral or offbeat people, but exclude those who have no competence that relates to the problem or opportunity. Their silence will make them uncomfortable and may dampen momentum. Still worse, they may try to participate and throw the meeting off track.

3. APPOINT SOMEONE TO RECORD THE SUGGESTIONS. Have someone write the basic ideas on a flip chart that can be displayed throughout the meeting. A tape recorder may be used in conjunction with the written notes as a backup, but don't use a tape recorder alone. You may want to refer back to something that has been said, and finding those parts on tape will cause an undesired delay.

4. SET RULES AGAINST NEGATIVISM. Do not allow criticism or negative comments. People should feel free to be as spontaneous as possible and offer all ideas as fast as they come.

5. EVALUATE. This is best done by a small group capable of separating the useful ideas from all those gathered.

6. REFINE, COMBINE, AND IMPROVE. The evaluation committee should regard the retained ideas as raw material for further improvement and weave them into the profit plan for action.

7. REPORT BACK. The group should get feedback on the results of their efforts. This is desirable in any event, but essential if you plan to ask the members to participate again in the future.


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