Finance and Accounting

Nov 18, 1996

There are a few firms out there that really have their act together when it comes to the finance and accounting function. But by and large, A/E/P and environmental consulting firms struggle with what should be relatively simple tasks related to this extremely important functional area. When I talk with CFOs/controllers/treasurers/directors of finance and administration/accounting managers in these firms, too many have no clue about their priorities or how to get anything done beyond the bare minimum to stay in business. I hear excuses about the weaknesses in their accounting software package, or how they can’t get the line managers to do what they are supposed to, or how everyone wants something different from them and they are trying to service all these requests. The bottom line on why things that should be happening aren’t comes down to a lack of confidence, a lack of creativity, and a lack of energy and enthusiasm for solving recurring problems so management can turn its attention to uncommon, uncontrollable problems that inevitably surface. Here’s what I see too often, along with what I should be seeing: Cash flow reporting. Beyond reporting how much came in that day, week, or month, most firms don’t do squat when it comes to cash flow reporting, and more importantly, cash flow forecasting. Then, when they do prepare a forecast, all they do is apply standard average collection rates to all outstanding accounts receivable, so the result means very little. Firms in our business live and die by cash flow. Every company should forecast at least 4, and possibly as much as 12 weeks in advance whether they are going to come up short or have cash left over, week by week, based on the collection history of each client and the payment of all known bills. This is so simple— why don’t more firms do it? All they have to do is assign an anticipated date of collection to every bill as it goes out, and assign a payment date to every bill as it comes in. Debt reduction. The typical firm does not know where it stands, working-capital-wise. They don’t regularly track the total amount of cash they hold in all accounts, liquid securities, and good money owed to them, less their line of credit debt and payables that they’ll have to pay in the next 30 to 60 days. Want to reduce debt? Then track this number. Report on it. Drive this number up. If you don’t track and report on it, you won’t know where you really stand. This is a good way to avoid doing what’s necessary to improve the situation. Collections. Most firms report accounts receivable in an alphabetical list of clients with the aged receivables listed by each (i.e., how much is less than 30 days old, how much is 31-60 days old, etc.). Sounds logical, right? Wrong! What you should do is report all receivables to all managers in a list, showing the oldest money at the top, and going all the way down to the bills that just went out. There’s a psychological value to seeing the oldest accounts receivable first— it beats you over the head and reminds you how crazy you are to let that go on! Billing. I still see firms that actually owe money to their banks who don’t send bills out on a continuous basis. Why? Beats the heck out of me— there’s no reason why bills should only go out once a month. If a job is done on the 5th, and the regular billing period ends on the 28th, why would any company paying interest and suffering the psychological damage that comes from being in debt not want to get the bill out on the 5th? The F&A people need to stop their excuses and get their priorities straight— and not much comes before getting bills out! P&L reporting. It’s crazy that so many firms wait a month or more to find out how they did in a particular month. That means that another month is wasted before you can do anything about it. These P&Ls need to be done less than a week after the period is closed, and hopefully even sooner. Job numbers. Too many firms take weeks to open jobs and weeks to close dead jobs. That’s insane! New jobs should be open on the day they come in, or the day after at the latest. Old jobs should be closed when they’re done, not months later. And by the way, just because your accounting system won’t allow you to close a number when money is still owed to you doesn’t mean that you can’t make the job “inactive,” which keeps people from charging more time or reimbursables to it. These are just some things that the finance and accounting people need to do. If you don’t get what you need from this group, route this article to them and ask why. And don’t be too sympathetic when you hear their excuses. Originally published 11/18/1996

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