Manage Details


When you have an idea you want to remember, stop what you’re doing and write it down. Don’t write it on a business card or the back of an old envelop, but in your time and priority management binder, which will become a trusted memory bank. In your alphabetical phone index, keep separate sheets for each of the people you frequently deal with (such as clients, buyers, colleagues, accountants, doctors) over the course of a year. Every time you have an idea that should be mentioned the next time you encounter the person, write it down on that person’s page. Then instead of worrying that you’ll forget, you can simply refer to the sheet next time you talk to the person face to face or on the phone.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Financial Ratios


Most managers and accountants maintain control in part by monitoring various financial ratios, which compare one financial indicator on a financial statement to another. Financial ratios can be used to analyze a firm’s performance.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The New Corporate Governance Structures


The most significant change in the restructuring is the heightened role of corporate internal auditors. Auditors have traditionally been viewed as performing a necessary but perfunctory function, namely to probe corporate financial records for unintentional or illicit misrepresentations. Although a majority of US corporations have longstanding traditions of reporting that their auditors operated independently of CFO approval and that they had direct access to the board, in practice, the auditors’ work usually traveled through the organization’s hierarchical chain of command.

In the past, internal auditors reviewed financial reports generated by other corporate accountants. The auditors considered professional accounting and financial practices, as well as, relevant aspects of corporate law, and then presented their findings to the chief financial officer (CFO). Historically, the CFO reviewed the audits and determined the financial data and information that was to be presented to top management, directors, and investors of the company.

Because CEOs and audit committees sign-off on financial results, auditors now routinely deal directly with top corporate officials. Approximately 75 percent of senior corporate auditors now report directly to the Board of Directors’ audit committee. Additionally, to eliminate the potential for accounting problems, companies are establishing direct lines of communication between top managers and the board and auditors that inform the CFO but that are not dependent on CFO approval or authorization.

The new structure also provides the CEO information provided directly by the company’s chief compliance and chief accounting officers. Consequently, the CFO, who is responsible for ultimately approving all company payments, is not empowered to be the sole provider of data for financial evaluations by the CEO and board.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

The Profit Economics


The following information is required, at a minimum, to understand the profit economics of a business:

  1. How many dollars of assets are committed in each stage of each product/market business (e.g., R&D, materials, plant and equipment, finished stock, post-sale support)?
  2. What is the fixed/variable cost relationship for each product/market business, that is, for each dollar of sales, how many cents are attributable to bedrock fixed costs, how many to structured or discretionary costs, and how many to out-of-pocket costs?
  3. How do costs and profit change with swings in volume?
  4. What is the break-even point at current volume and what actions could be taken to bring that break-even point down should volume potential decline?
  5. What is the rate of incremental profit on each added increment of volume? What are the volume points where new increments of structured cost must be added?

A net profit and loss statement (after all allocations) and a balance sheet for each product line are essential for generating answers to these questions. Despite their claim that “we know all that,” very few managers actually have this information readily available.

Actually, most accounting systems are not designed to provide these kinds of statements and the accountants will argue that you can’t get them because many products run over the same machines, a lot of indirect costs can’t be allocated, and so on. To which we say, baloney! Shared fixed and indirect charges often represent the most serious cost problems in business situations where a cost disadvantage exists. And they are impossible to attack in the aggregate. They must be broken down and assigned to a discrete business unit even if done arbitrarily. Then a manager with hands-on responsibility can argue about fairness and whether there is value received for the costs involved. Although this is obviously not a precise exercise, it is effective and essential. Without full cost profit and loss and balance sheet statements managers cannot really understand the profit economics of their business. Further, they can’t make the types of intelligent business decisions and plans so important in today’s environment.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Lectures, Line of Sight

Hetrogeniety


Because services are performances, frequently produced by humans, no two services will be precisely alike. The employees delivering the service frequently are the service in the customer’s eyes, and people may differ in their performance from day to day or even hour to hour. Heterogeniety also results because no two customers are precisely alike; each will have unique demands ir experience the service in a unique way. Thus, the heterogeniety connected with services is largely the result of human interaction (between  and among employees and customers) and all of the vagaries that accompany it. For example, a tax accountant may provide a different service experience to two different customers on the same day depending on their individual needs and personalities and on whether the accountant is interviewing them when he or she is fresh in the morning or tired at the end of a long day of meetings.

Because services are heterogeneous across time, organizations, and people, ensuring consistent service quality is challenging. Quality actually depends on many factors that cannot be fully controlled by the service supplier, such as the ability of the consumer to articulate his or her needs, the ability and willingness of personnel to satisfy those needs, the presence (or absence) of other customers, and the level of demand for the service. Because of these complicating factors, the service manager cannot always  know for sure that the service is being delivered in a manner consistent with what was originally planned and promoted. Sometimes services may be provided by a third party, further increasing the potential heterogeniety of the offering. For example, a consulting organization may choose to subcontract certain elements of its total offering. From the customer’s perspective, these subcontractors still represent the consulting organization, even though their actions cannot be totally predicted or controlled by the contractor.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Accrual Accounting and Cashflow


Before the end of World War 1 most managers kept track of cash out and cash in. many senior citizen owner-managers still do today. There is an inherent problem in keeping the records that way, however, if the business offers and receives much credit. Doing business on credit displaces the time of the exchange of cash from the exchange of goods and services. Sometimes very little cash comes in during a particular month and very much cash comes in during other months. The same is true of cash out.

Keeping in track of what you pay or get paid for credit transactions causes the monthly reports describing the operations to fluctuate from month to month even though the goods and services flowing in and out of the business may be very much the same. About 1920 the accounting profession began placing emphasis on the accrual method of accounting to overcome this difficulty.

The accrual method portrays the smoothed-out profit as if all the transactions had been for cash and as if the business had purchased only exactly what was needed to make the sale. It is not an accurate portrayal of everything going on in the business, but it is a good approximation of the net effect of those things that affect profit. The problem is that so much emphasis has been placed on the accrual method income statement and balance sheet that the importance of cash has been regulated to virtual obscurity.

Even this result is satisfactory when the reports are describing large businesses with access to external financing through the stock market, commercial paper, and bank loans at the prime interest rate. But companies that do not have access to these external sources of financing have a different problem. For them, the flow of cash through the business means life or death, whether the accrual based profit is great or terrible. When new or small businesses need cash they must turn to the bank, the banker will look to the personal savings and assets of the owner-manager for collateral.

Accountants have not forgotten nor overlooked the importance of cash. They recognize the need for cash in sufficient quantity to keep the business operating. For their purposes, however, they often infer the cash available to the business from the income statements and describe future cash availability with the balance sheets. They, and others, frequently describe it as: cash flow equals net profit after taxes plus depreciation and other noncash expenses, such as amortization.

This statement is incorrect except under some very stringent preconditions that rarely exist in practice for a small business. This statement is an approximation that is valid for large and stable businesses in which changes from year to year are small and the statements from which the cash flow is inferred are annual reports. For a small and new business looking at monthly financial reports this approximation is inadequate. In a small, growing business the net cash flow to the firm’s bank account does not equal the net profit plus depreciation. Profit is not cash nor is it cash flow.

Although this pronouncement may be unconventional, entrepreneurs are realistic. Successful entrepreneurs ask how it really works and then get on with building their business. In the conventional approach the analysts, having inferred cash flow from profit, depreciation, and amortization, stop there, allowing their readers to assume that the resulting cash is in the bank wiating to be spent.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

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