Finance and the Private Company - On The Numbers
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SECTION: On The Numbers

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Finance and the Private Company


Article Date: 08-01-2006
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

System, closing and tax issues, new standards, a lack of qualified personnel, SOX

In the last few months, we've covered a variety of subjects relating to the ever-changing role of your finance department. It's no secret the demands on finance professionals are getting both more complex and numerous. Coupled with the lack of good support people, many CFO's wind up without the horsepower to provide the information, planning and leadership expected in a best-practice environment. Some months ago, I mentioned a report that stated that about 50 percent of U.S. businesses close the monthly books in five business days. This morning I attended a program entitled "How to Close in a Day" by John Daly.

This session had about 60 participants and when Daly asked for a show of hands of who closed in five days, about 40 percent said they did. Some said they were doing the monthly close in three days. Can you believe it?

Some of you are sitting there now shaking your head and thinking, "This guy is nuts. It can't happen".

I was having similar thoughts until we went through all the types of businesses represented in the class that were making the five-day close. At that point, I became a convert believing the five-day close is possible for an equipment dealership. Too many of those that do it are in businesses with job costs, service costs, and other complex transactions, and still make the quick close work to the satisfaction of management.

The key to making this work for any type of business is finding out how you process information, identifying the time consuming processes and laying out a critical path analysis to make sure steps are being followed in the right order to minimize the closing process.

In addition, having a state-of-the-art system, properly installed - completely installed - with the modules integrated the way they were intended and assuming all relevant parties have all the necessary training to properly run the programs is also required. Done right, these steps provide you with both the operating and financial systems you need to efficiently operate the business.

New systems provide formats that allow extensive use of the system to generate the information and reports commonly prepared through the use of Excel worksheets. Daly says the use of Excel worksheets is no longer required because properly developed systems have the capability to provide the information.

No matter what subject we covered, from doing daily cash/bank reconciliations to managing accruals or accounts payable, the answers sometimes found on Excel worksheets were available through the system in 99 out of 100 cases.

You can no longer say the five-day close is impossible; it isn't. It may not happen tomorrow, but after you start improving the process, the benefits will show up.

With systems taking over the way we process and report financial activity, the way we internally or externally audit a company has to change as well. Consequently, it's no wonder Sarbanes Oxley (SOX) makes it a requirement to audit public companies in this manner.

Even though SOX does not apply to private companies, it might not be a bad idea to get a handle on your controls by insisting your auditor "audit" the controls of your key systems over the next couple of years.

I recently attended a cash management seminar where we discussed control issues in today's banking environment. Quite frankly, it scared me. There seems to be exposure galore out there waiting for the unsuspecting dealer to get taken advantage of. If I were you, I'd get my bankers in for a discussion to determine if you have proper controls in place to avoid potential problems.

Not that SOX isn't enough to deal with, now we have the FASB wading in again on lease accounting, promising new lease accounting standards for both public and private companies.

In short, it looks like they're looking for a way to make lessees record operating lease obligations on the balance sheet.

So we have system issues, closing issues, new accounting standards, a lack of qualified support personnel, new tax issues, SOX requirements, and a myriad of other financial issues to cope with. It may be time to have a strategic planning meeting devoted to upgrading your internal finance operations.

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Article Categories:  Financial  »  Taxes