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  • Laresa McIntyre, CMA, MBA
    Senior Finance Executive ~
    Change Catalyst ~
    Highly-Adaptable Leader

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    In addition to my professional life, I run marathons and half-marathons to raise money for the Leukemia & Lymphoma Society to help in the fight against blood cancers. Contribute to the fight by making a donation -- just click on the logo above.

What Marathon Training & Business Share in Common

Over the past 4 years, I have completed 4 marathons and when I stopped to think about the effort required to train for one, it occurred to me there are many parallels to the effort expended in starting and running a business.

Deciding To Do It

Whether you want to run a marathon or start a business, at some point in time you make the decision to do it.  Each person’s motivation may be different but the end result is making the commitment to proceed.

Making a Plan

Planning is probably the most important part of the entire process because it provides the roadmap to success.  For a marathon runner it includes picking a race, putting together a training schedule, deciding if you want a coach or not and seeking one out if you want one, getting the right shoes and clothes, and finding running routes where you can train.  It’s not so different for a business.  The business plan includes setting goals and objectives, finding a mentor or advisor if you want one, buying the equipment you’ll need to run the business, setting out a marketing plan, and getting the funding needed for the business.  Without a plan, you’re just running without purpose!

Adjusting to Setbacks

The best laid plans can go awry and setbacks are inevitable.  Sometimes the setbacks can be minor — a training run that doesn’t happen because of lightning or an ad campaign that doesn’t quite create the excitement you were hoping for.  These can be overcome with some tweaks to the plan.  But sometimes the setbacks are major — an injury that makes running impossible or a necessary bank loan that doesn’t come to fruition.  These setbacks require hard decisions like whether to continue.  Just like a marathon runner who continues to train when they are injured and ends up doing more damage, possibly ending any chance of ever doing a marathon, a business that reaches an impasse too difficult to surmount can do more damage by plowing forward (like bankruptcy court).  It is possible for time to correct the setback — waiting until the injury is healed and picking a race later in the calendar, or waiting until the credit markets open up to get that loan.  You just need to decide if you want to wait.

Staying Committed

Provided you haven’t hit a major setback that puts a complete end to your plan, to be successful you must be committed to the process.  A training schedule that you don’t adhere to will lead to disaster on race day.  A business plan not followed will result in half-hearted attempts to be successful.

The Big Day

For the marathoner, race day is the culmination of all of the hard work and training that has consumed their life for the past 16 – 24 weeks.  It’s the big day and they savor every moment.  Every business has a big day as well (or several) — the pitch to a retailer that results in a purchasing contract for your product or landing a big consulting job.  Businesses should savor these moments as well.

On to the Next Challenge

Once the marathon is done, many people feel a let down.  The thing they have been working so hard to achieve is now done.  This usually leads to signing up for another race so the whole process can start again.  Yes, the marathoner is a strange breed who finds pleasure in the pain they put themselves through.  So, too, is the business person.  They work hard to get that contract and instead of resting on their laurels, they move on to the next challenge because that is what defines success for them.

Whether your race is 26.2 miles or the quest to be the best in your industry, run well, run often and never look back!

(De)Centralization

Someone once told me a story about a man who only kept two files in his desk — one on how to centralize the company and one on how to decentralize it.  It turns out every time there was a change in leadership, there would be a corresponding shift in the way the company was structured.  Why all the flip flopping?  Is one structure better than the other?  Or is this just a case of someone putting a stake in the ground to put their own signature on the company?

Quite honestly, there is no clear cut answer about what is best for a business.  Whether to centralize or decentralize needs to be evaluated on a case-by-case basis by considering the goals of the company and how interactions, both internally and externally, will get the business to those goals.  What happens more often than not is a hybrid situation.  Sales is decentralized but marketing is centralized.  HR is centralized but operations is decentralized.  However, there are two areas of a company where I think at least some centralization needs to be strongly considered — finance & accounting and IT.

Many of the arguments for centralizing these two functions are similar:

  • There are economies of scale to be gained from managing bulk transactions or company-wide systems with a dedicated group of employees.
  • Consistency and best practices can be filtered throughout the organization.
  • Maintaining controls and ensuring prescribed procedures are followed is easier.

In today’s economy, and with the multitude of legislative requirements especially surrounding the finance & accounting field like SARBOX, these thoughts should be at the top of the list when considering the centralization question.  Centralization of functional areas like A/P, A/R, cash management and payroll is important to consider since these are prime gateways to fraud and embezzlement.  And the recent stories coming out of Koss, Avaya and Bank of America should certainly make us sit up and take notice.  This is not to say centralization would completely protect a company but it’s easier to ensure the controls to prevent it are followed.

Even though it may seem I’m a huge proponent of centralization for finance & accounting, you will notice I said some centralization needs to be strongly considered.  One of the downfalls of having all of finance & accounting run from a central perspective is often the creation of an “us vs. them” mentality.  Finance is viewed as being prohibitive, not working with the business and being more concerned with following the rules regardless of the impact on operations.

There is a way to avoid this — ensure there is good communication between finance and the business units.  One of the best ways to accomplish this is to have a dedicated accountant or analyst working with each group that is actually part of their team.  The accountant can act as a champion for the unit to see their needs are addressed but are still balanced with the requirements from the center.  They also gain a better understanding of the unit and can provide the insight needed when doing variance analysis or business evaluations as part of the reporting process.  This is how I structured my department and each of my accountants became a valued team member whose opinion was sought in day-to-day decision making.

Ultimately, each company must weigh their requirements and their culture to structure the finance & accounting function so it provides the support and value needed by the business.  Just remember, it doesn’t have to be an all-or-nothing proposition when it comes to centralization or decentralization.

It’s OK to Let Go: Sunk Costs

I’m sure you’ve heard at some point in time someone say “but we’ve invested all this money so we have to keep going”.  For the folks that say this, the need to continue on a path is directly correlated to how much money has already been spent.  For them I have two words — sunk costs.

It is essential for everyone in business to understand the concept of sunk costs.  Sunk costs are costs that have already been incurred and cannot be recovered regards of what happens in the future.  In other words, what’s spent is spent.  Now I’m well aware of the fact that sometimes this spend is quite large and someone may have expended a lot of time and energy on a project.  But if continuing to put more money in a project is not going to result in positive returns, by all means stop!  What’s spent is spent and spending more is not the road to redemption.

I remember when I worked for a food manufacturer; they decided to start manufacturing a new candy.  A formula was created and a few test runs were made which seemed to go well.  The concept was presented to the sales group to see if there would be an interest in the market for it.  There was instant enthusiasm and work on a marketing campaign was started.  Then they started full-scale manufacturing.  What happened next was anything but good.  The equipment they were utilizing was really not up to the task of a different formulation causing the scrap rates to be 50%+ and getting a good quality product was very difficult.  They tweaked and played but the reality was they needed to buy new equipment to make this candy.  And new equipment wasn’t an option because the return wasn’t large enough to warrant its purchase.  So guess what they did?  Because so much money had already been spent on R&D and the marketing campaign, they plowed forward.  Eventually, they realized it wasn’t going to work and scrapped the project.  But if they had considered what they had already spent as being a sunk cost and stopped earlier, they wouldn’t have had good money chasing bad.

Most businesses are guilty of doing exactly this at some point in time.  A project that creates a sense of enthusiasm and rallies people to it can produce this blindness because everyone wants it to succeed at all costs.  However, businesses need to be disciplined and have ways of preventing the groundswell of enthusiasm from drowning good decision making.  And they need to ensure they have communicated to their employees that if something fails, it’s OK to let go.

Who’s the Best? Benchmarking to Keep Ahead

“Competition is the keen cutting edge of business, always shaving away at costs” ~ Henry Ford

Being better than the next guy is a driving force for many businesses especially in highly competitive industries.  Everyone wants to be at the top of the heap and set the standard for excellence.  And for those who aren’t the best, they want to know how the best got there and how they can improve to surpass the current leader.  This is the essence of benchmarking.  Benchmarking is the act of comparing yourself against others to determine where you stand relative to the competition.  It may seem like an easy thing to accomplish on the surface but there are a few issues that need to be considered.

First, you need to determine who is your competition.  For industries with a few big players this is not difficult but when you are in an industry with lots of small players, sorting out the winners against which to compare yourself can be challenging.  You might want to consider focusing on companies that match your demographic profile like geographic reach or number of employees to make the comparisons of more value.  You can also benchmark against companies that might be national if this is the eventual strategic path your business wants to take.

Second, you need to determine what measures you want to use to compare yourself to the competition.  Do you want to measure market share, employee productivity (like sales dollars per employee), product quality, or other measures?  The selection of measures will be dependent upon your industry and what your motivation is behind benchmarking.

Third, you need to figure out how to get the information you want to complete your benchmarking study.  This may be the most daunting task of all.  Again, when dealing with public companies much information is available because of the reporting requirements they have to their shareholders and the public.  But getting information on private companies and industries can require more creativity and a strong penchant for research.  When seeking out information about other companies or industries, try some of these sources:

  • Industry associations & groups
  • Internet searches
  • Libraries (public library or universities & colleges especially ones that have a business school)
  • Dun & Bradstreet
  • Hoover’s

Most of the major accounting and business intelligence applications provide a benchmarking module or service.  There are also two online products that will provide benchmarking services that have been mentioned in internet searches on the subject.  Although I haven’t used either, in looking at the information about their products, it might be worthwhile to examine them to determine if they could bring value to your company:

  • webKPI (www.webkpi.com)
  • ProfitCents (www.profitcents.com)

You can also try to create a mutually advantageous relationship with your competitors to share information.  This may seem like a bit of a pipe dream but if the information being shared is not proprietary, it might behoove everyone to engage in friendly competition.  Competition spurs on creativity, innovation, and a desire to win.  And depending on the industry, this can serve both businesses and customers well.

Welcome to The Finance Compass

I’ve been thinking about starting a blog to discuss finance and accounting issues and decided what a better time to start than 2010!  The past year has been fraught with challenges for everyone and now more than ever it is so important to share ideas and get an open dialogue going on what we need to do to make business better.

Although this blog is aimed at finance and accounting, my intent is to make it not overly technical so the content can be valuable to anyone in business regardless of position.  I also realize many of my accounting and finance counterparts will be familiar with some of the concepts and materials I present here.  Often times though, we get caught up in the way we’ve always done things and we forget about things that can make our lives easier or can bring improvements to our business.  Hopefully the posts in this blog will jog your memories and prompt you to go back to explore the things you know.

Starting this week, I will be posting a series about budgeting and related measurement tools.  I know that for many companies the budgeting process is months away but I believe it is vital to start thinking now about how to make it better.  We all know once the budgeting cycle starts, it is too crazy to take a step back and ensure we are headed in the right direction, and that the fruits of our labor will actually mean something.

I welcome all of you to The Finance Compass and trust you will find it informative, thought-provoking and a “must read”!