Is It Your System,Your Staff, Or Both? - On The Numbers
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SECTION: On The Numbers

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Is It Your System,Your Staff, Or Both?


Article Date: 03-01-2006
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

Spending on system upgrades and training results in meaningful information.

I have recently been involved with panel discussions about benchmarks, key performance indicators, system output, and similar topics, all of which require a top-notch accounting department. Mr. CEO: Where does your accounting department fit into the scheme of things? Should you be shoring it up, or expecting more for what you're spending? If the key to winning the business wars is information, then timely accurate reporting of the appropriate indicators is the key to being a "high-profit" performer. Figuring out where you stand will require a review of your system capabilities and output; the timeliness of daily, weekly and monthly reports; and the relevance of the data collected.

The discussion group on computer systems concluded that current industry systems have a lot to offer that is not being used effectively. Apparently, tons of data is not being utilized because management doesn't know it's available, decided not to spend money on training to get to the data, or is not spending the time to learn what is available and how to use it.

To find out where you stand with your system requires at the very least a meeting with your systems vendor. You also should access your ability to make the changes and train staff. You may find you don't have the internal horsepower to get the job done. If you need help, there are part-time CIOs available who can plan, prioritize, review and implement the plan.

Once the computer systems are under control, what should you expect in terms of processing? We now have benchmarks to compare your accounting and finance department against. According to CFO magazine, the American Productivity and Quality Center collected data on finance functions and came up with these measures. Tough goals to meet, but those that do will use their systems to the fullest. Personally, I'd accept monthly financials by the 15th of the following month.

If you can't do that, something needs to be fixed. I suspect what they are saying regarding statement cycles is: "Once the books are closed it takes five days to produce the statement." That makes sense.

The next measure the American Productivity and Quality Center considered was accuracy. In the sample, more than 40 percent of the participants were 90+ percent accurate. Doing it right the first time saves time and money. The sample found participants are not outsourcing much - payroll and tax work mostly, with other finance and accounting functions remaining internal.

What is most interesting from the study is what we can expect from the finance department in the future. This study indicates that within three years, the accounting or finance department will spend about 50 percent of its time on management activities and decision support. If that's true, and the need is there for these types of internal services, then shifting the finance department into this mode will require maximum use of business systems, training and an adequate staffing level to allow key members of the department to participate in planning and decision-making.

What will this cost? About 0.8 percent of sales.

A company with $50 million in sales should spend $400,000 on finance and accounting functions. Working backwards, I'd say that comes out to six to eight people, which should include IT personnel. This cost is calculated before any personnel are charged to other departments.

So, if we assume:

  • Getting quicker, faster data helps you make better management decisions.
  • Having daily, weekly and monthly dashboard reports help maximize profitability.
  • Getting faster, more informative data requires specific system output and personnel expertise.
  • Your accounting department will participate more in decision-making.
    Then it's time to audit both your system and finance functions.
Maybe you need more people, more competent people or a part-time component to help the CEO assess the situation. If the billing isn't getting done on a timely basis, statements are never done on time, it takes 10 months for yearend reports to arrive, or you really don't have a feeling for what's happening in the business,
that's enough to tell you it's time for a finance department review.

While you probably have dedicated, competent personnel, they may not have access to the tools or training they need.

If they ask for more help, ask what additional output you can expect and measure it. If they're correct, you should see better information more often and decision-making should be less burdensome.

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Article Categories:  Financial  »  Information Technology