Monthly Archives: September 2013

Second Set of Eyes: The Value of Redundancy

The idea of redundancy is sometimes associated with inefficiency. However, building in redundancy is often crucial to ensuring continuity and effectiveness in business operations.

Building in redundancy can be applied in various settings, including IT-related backups. A company needs to continue operating if a server crashes or a disaster strikes. Data recovery can only happen if a routine backup (i.e., storing data redundantly) is implemented.

Cross training employees is another area of redundancy. Rather than having only one employee who can perform key functions, build in redundancy by training one or two others. Furthermore, documenting key processes and procedures ensures continuity if a key employee leaves.

Another area for redundancy is accounting and internal controls. For example, have a “second set of eyes” check invoices to customers and payable runs for vendors. Finance professionals, especially accountants who deal with many transactions on a daily basis, get inundated with details and can make mistakes. Having a “second set of eyes” is a great form of redundancy to ensure that mistakes are caught, fraud is prevented, and processes are performed effectively.

Accounting firms are known for hiring young accountants and utilizing the process of reviews as a primary tool for development. Whether the project is a tax return, audit or review, or a consulting project, senior accountants review and mark up the work of the less experienced staff. Not only do the more experienced “second set of eyes” catch mistakes before work products are delivered to customers, but the process serves as a very valuable and enlightening means for younger accountants to quickly and directly learn on the job.

Another opportunity for a “second set of eyes” is with business documents such as contracts and agreements. Small clauses can have large impacts, positive or negative. Take advantage of subject matter experts, such as accountants and lawyers, who can provide a “second set of eyes” to avoid costly mistakes during business negotiations.

The Number One Way to Gain Your Employer’s Trust

All of us have seen or heard of situations in which an agent (e.g., an employee) abuses the trust of his principal (e.g., the employer). Business theorists refer to this as an “agency problem,” the conflict of interest that exists when an agent looks out for his own interests above (and to the detriment of) the interests of his principal.

One of my mentors, a finance executive, once explained that he tried to manage the company’s money “as if it were my own.” He set a good example: Just as he would watch his own finances with eagle eyes, he paid careful attention to his employer’s money. By demonstrating a pattern of due professional care, he clearly demonstrated that he took his fiduciary responsibility seriously.

The best way to gain your employer’s trust starts with your own mindset: Treat your employer’s resources as if they were your own.

Your employer will trust you if you demonstrate a pattern of careful analysis and decision-making. You must exercise due diligence in small as well as large areas. Wisely manage resources that have been entrusted to you and areas of oversight that have been delegated to you.

Your ability to negotiate for a better stake in the future of the enterprise will be enhanced if you prove that you have the organization’s best interests at heart, not just your own best interests.

Managing Perceptions: The Hidden Value of Policy-Making

We have all heard the expression: “Run it like a business.” Some church leaders try to run their organizations “like a business.” Politicians sometimes speak of running government “like a business.”

So what does it mean to “run it like a business”? When you think of a “real” business, what comes to mind? The essence of how a management team “runs” a business is found in its policies and procedures. These can be formal and written, they can be communicated, and employees can receive training in them. Or they can be informal, ad hoc, unwritten, and generally fuzzy so that employees are uncertain about the policies and procedures. Senior management gets to decide which approach to take on the question of policies and procedures.

Consider the difference between a major league baseball game and a neighborhood game on the sandlot. The stakes are higher — lots of money and pride are on the line — in the majors. The level of care and documentation for policies and procedures (rules), as well as training (for coaches, players, umpires, etc.) is staggering compared to how much thought goes in to an informal sandlot game.

Policies and procedures help set the tone for whether a business is playing in the majors or on the sandlot.

One advantage of carefully thinking through, documenting, and providing training in policies and procedures is consistency. No matter who is handling a particular matter, senior management can be confident that employees who were carefully selected and trained for their roles will reach the proper conclusions and undertake the appropriate actions that management intended.

Another great advantage of a deliberate approach to policies and procedures is not so obvious initially: perception. Employees perceive that management cares and the company is a “real” business when formal, written policies are in place. When employees perceive that management cares, employees take a greater interest in performing their roles effectively. Management sets the top at the top and should devote company resources to training employees in the policies and procedures of the business. This creates a perception of organizational soundness and stability among employees. Also, employees can confidently communicate with customers, vendors, and other stakeholders about the company policies. Employees need to know how the company does business. This sets a tone for managing business relationships.

Perhaps management wants to provide guidance and boundaries but also wants to give employees leeway to use their judgment. An employee can articulate a variation of the following: “Company policy says X, Y, and Z regarding this situation, but I have discretionary leeway built into my role so that I can use my best judgment and diverge from company policy just this one time for your benefit” (usually these are the words of a supervisor, not an entry-level customer service rep). In this scenario the customer perceives that the company is doing something thoughtful and gracious by making a one-time policy exception.

The other option is to give no guidance on policies and procedures and leave it up to the individual handling the matter to navigate through the complexity. An inexperienced employee might say, “I think a 90 day return policy for a used and abused item is reasonable.” This might avoid a conflict with an unreasonable customer, but it is not a good policy. Even when the customer gets its way in this scenario, the customer walks away with no perception that the company is a “real” business. The company has not done something thoughtful but has been manipulated by an unscrupulous customer. The scenario is a joke, not an opportunity to build customer value and loyalty. The matter could have been settled by senior management beforehand by setting sound policy and training the employee accordingly.

Again, this responsibility falls on senior management. When employees have no policies and procedures to follow and make inevitable mistakes, management has no one to blame but themselves. The tendency more often is to blame the employee that did not do it management’s way — even though management never bothered to communicate to the employees how the job should have been done.

Not only do employees, customers, and suppliers have a better perception of the business when policies are in place. Policies and procedures affect the perceptions of other stakeholders. Even regulatory agencies in certain cases can consider a company’s compliance policies, procedures, and training as mitigating factors for penalties when unintentional regulatory noncompliance takes place. Again, perception is a massive benefit for a company in this scenario, as compared to having no policies, procedures, and training — which can be expected to lead to regulatory noncompliance due to management’s negligence.

Several areas for policies and procedures include (but are not limited to) the following:

  • Accounts receivable, credit, and collections
  • Accounts payable
  • Human resources (the subcategories here are vast)
  • Customer service
  • Tax and regulatory compliance
  • Any other area that involves risk or requires judgment and discretion

Position your business for success by setting policies and procedures. Train your employees to comply. Drill this into them at every opportunity and set an example. This will set up your business to compete in the majors rather than on the sandlot. Every individual and organization that interacts with your business will have a better perception that your business is “run like a business” and is a “real” company rather than a joke.

Vision Clarifies Dreams and Goals Make Your Mission a Reality

No matter your background in life, if you are reading this, it’s clear that you have a mind and capabilities to work toward success. You can make a choice to take ownership of your career and be proactive to build a track record of achievement. As you progress, you will find great benefit in strategic planning. Start with your dreams, clarify these with vision, craft your mission statement to define your calling, and set goals to stay on track. What is the best way to approach this process?

Radio host and personal finance guru Dave Ramsey wrote a book for small business owners called EntreLeadership. His third chapter, “Start with a Dream, End with a Goal,” contains some helpful insights on each step, which I summarize below:

Dreaming – This is great because it demonstrates you have hope and the energy to win, but you don’t want to stop with merely being a “dreamer” who can’t deliver.

Vision – Being able to see a path forward provides clarity to eventually translate your dreams into action for yourself and/or your team. Constantly communicate and reinforce your vision to yourself and the people with whom you work.

Mission statement – Further clarify and define your dreams and vision so that you know what you are about. This helps creates your organizational culture (or in the case of an individual, your “personal brand”) and defines the value for every role or task. This helps you prioritize, focus, and decide when to say “no” to opportunities that are outside the bounds of your calling. The mission statement includes the following:

  1. What – your skills and abilities
  2. How – your personality traits
  3. Why – values, dreams, and passions

Goals – This is where the dreams, vision, and mission become practical and down to earth. There is a “wheel of life,” which includes the following spokes or areas in which to set goals (be intentional and don’t neglect any one of these, even the areas in which you are weak):

  1. Career
  2. Financial
  3. Spiritual
  4. Physical
  5. Intellectual
  6. Family
  7. Social

Furthermore, there are five necessary attributes for goal-making success:

  1. Specific – not vague (e.g., “I want to lose ten pounds” rather than “I want to lose weight”)
  2. Measurable – this leads to measurable progress, or traction
  3. Time limit – this helps you stay focused and on track so that your goal is not merely something you want to “eventually” (i.e., never) accomplish
  4. Your goals – you must own the goal, and it must be derived from your dream in order for you to have the motivation to overcome many inevitable challenges
  5. In writing – many people fail at this point, but the successful ones almost invariably have written goals

Consider these helpful tips as you formulate a career development plan: Dream big dreams. Then clarify your dreams with vision. Define your vision in terms of a mission. Finally, make your mission a reality with goals.

Give a Sincere “Thanks” to Those Who Help You

Many of us spend our working days solving problems, analyzing details, and (if we find some spare moments) thinking of ways to improve our businesses. Frequent complaints and negatives — from vendors, customers, coworkers, and others — can create a drag, zapping energy and productivity.

Look for opportunities to freshen and energize the environment by expressing gratitude.

Treating people like people, rather than like machines or animals, can work wonders for your relationships in various walks of life. If your coworker, your employee, or your boss helps you, say “thanks” — preferably within earshot of others within the organization. This is a sincere way to show that you value others’ contributions to your success and the success of the organization.

When someone helps me solve a problem — even if they helped create the problem or even if they’re “just doing their job” — I make a point to thank them. They often appreciate the gesture. And they are often willing to help more in the future.

Gratitude is a good attribute to include in your personal brand.

The Top Seven Ways to Kill Your Chance for a Raise

Anytime you ask someone to exchange resources — time, money, etc. — for something of value that you provide, you are engaging in the sales process. Any basic sales and marketing training program will emphasize that a sales person has to focus on articulating and demonstrating the value and benefits that can be delivered to the buyer. Consider: When was the last time you parted with your hard-earned resources without expecting value and benefit in return? Clearly, the answer is “never.” A buyer’s basic mindset doesn’t include concern for the salesperson’s well-being but rather, “What’s in it for me?”

Unfortunately, too many people forget that negotiating salary is fundamentally a sales situation. They insult the intelligence of the buyer (their employer) when they use reasons such as the following for why they deserve or need a raise:

7. “I’m Buying a House”
6. “I’m Having a Baby”
5. “I Can’t Pay My Bills”
4. “I Always Show Up to Work on Time”
3. “I’ve Never Asked for a Raise Before”
2. “I’ve Worked Here for ____ Years”
1. “My Coworkers Make More Than I Do”

Here are some tips drawn from the article:

  • Brainstorm legitimate reasons why you deserve a raise, and be prepared to articulate these to your employer
  • Show a consistent pattern of exceeding expectations, not just meeting them, and help your employer see that this pattern will continue
  • Your personal financial burdens are not your employer’s problem and should not be brought in to salary negotiations; you want to negotiate from a position of strength, not weakness
  • Focus on your achievements, how you have benefited the company, and how you plan to do so into the future
  • Don’t highlight your bare minimum performance because this is not raise-worthy
  • Answer the question that is implicit in your employer’s mind, “What have you done for me lately?”
  • In short, focus on relevant negotiation points that will resonate with your employer

Whether you are an employee or employer, you can benefit from understanding legitimate vs. irrelevant reasons for negotiating a raise.

No Exceptions: Five Reasons to Get Your Agreements in Writing

With a written agreement,
You have a prayer;
With a verbal agreement
You have nothing but air.

-Robert Ringer

Everyone in the business world will have an opportunity, at one time or another, to make a verbal commitment and shake hands to “seal” an agreement. However, as all savvy business participants learn, there is no exception to this rule: “Get it in writing.” Here are five reasons to never diverge from this simple rule:

      1. Why not? That’s right: Why not get your agreement in writing? I cannot contemplate a situation in which it would be unfeasible to commit an agreement to paper (or electronic form, if appropriate). There is no legitimate reason to avoid putting an agreement in writing. You have nothing to lose and everything to gain (see below), so just do it.
      2. Following up on the above point, there certainly are illegitimate reasons that someone might refuse to put an agreement in writing. One or both parties might not intend to follow through on the agreement (or they might want the option of an “escape” in case following through becomes challenging). That said, in most cases — from a legal and ethical standpoint — an agreement is an agreement, whether verbal or written. (Disclaimer: Consult an attorney, as this is not to be construed as legal advice). Even so, it is all too easy for one of the parties to say, “I never agreed to that. Prove it.” If you have nothing in writing, it will be your word against the other person’s word.
      3. Even assuming that all parties to an agreement are bargaining in good faith, fully intending to follow through with their commitments (and this is certainly by no means a given), getting an agreement in writing provides clarity on the specifics. Although it is possible to misunderstand a written agreement due to ambiguity, how much more unclear could a verbal agreement be, especially months and years after the fact.
      4. Requiring agreements to be in writing positions you as a careful professional who wants to make sure the interests of all parties are well served. This will make you attractive to business colleagues with a similar interest in integrity. As a bonus, it will make all the others think twice about doing business with you, knowing that it might be hard to pull a fast one on you.
      5. Written agreements are legally required for some contracts. And even when not technically required, written agreements can provide the best evidence of what the parties intended. Again, consult an attorney since this is not to be construed as legal advice.

If you have learned this lesson the hard way, you need no further convincing. If you have yet to learn this lesson the hard way, be grateful. Simply make a commitment that you will always follow this rule with no exceptions — no matter how compelling an offer might be from someone who refuses to put the agreement in writing. There is a reason they are refusing, and you can easily call their bluff by standing firm with your requirement to “get it in writing.” If this forces a no-go decision on the deal, you can move forward to the next opportunity knowing that you have spared yourself a lot of wasted time and resources.

Enhance Your Success With Written Goals, Public Commitment, and Accountability

Taking proactive ownership of one’s career development requires formulating SMART goals. Moreover, as you set goals it is important to be clear on your vision, values, priorities, and worldview. In future installments I plan to explore these and other items related to strategic planning.

For now, here are three tips for enhancing your success at achieving your goals:

  1. Write down your goals. Writing is an exercise that requires you to discipline your mind to formulate and clarify the specifics of your goals. Rather than muddling along with a vague idea of what you generally hope to accomplish at some point or another in the future, having written goals will sharpen your focus on what you want to accomplish, your time-frame for achievement, and the sacrifices you’re wiling to make to create success.
  2. Articulate your action commitment to a trusted friend. Don’t keep your goals to yourself. Use this to put pressure on yourself and gain leverage over your own tendencies to procrastinate or back down from your goals when challenges arise.
  3. Be accountable to your trusted friend by providing periodic progress reports. Attack your goals head-on, and let your trusted friend know about your challenges and successes.

Read the entire Goals Research Summary.

Three Ways to be a Savvy Finance Professional

Every now and then an “opportunity of a lifetime” will arise in your personal or professional life. How do you discern whether these situations are the “real deal” or “too good to be true”? Here are some tips I have compiled, which are drawn from reflecting on valuable lessons from classes I have taken in the “school of hard knocks.”

  1. Don’t believe everything you hear. “Well duh,” you say. In theory, this principle seems simple enough. In practice, it is all too easy (if we’re not careful) to let ourselves be bamboozled by slick and smooth blowers of smoke. Savvy finance professionals learn not to be dazzled by ostensible brilliance or baffled by indecipherable nonsense. This leads to our second point.
  2. Evaluate evidence and look for proof. If the sales pitch for this “opportunity of a lifetime” doesn’t make sense, be intellectually honest with yourself about this. Here’s a simple rule: Never pursue a product, job, or other type of situation that you do not understand. It is easy to become “desperate” to jump into something you don’t understand when you are driven by greed or fear. Therefore, you must maintain integrity and not get wrapped up in destructive emotions. Also, use your creativity to develop other opportunities for yourself so that you have “walkaway power” rather than allowing yourself to cast aside your better judgment and jump headfirst into a “too good to be true” scenario.
  3. Develop “professional skepticism.” This is a principle from the audit profession. Young auditors must learn to dig into the subject matter and understand the numbers for themselves rather than subordinating their judgment to the client or even to senior auditors. You have your own mind, and you must take ownership of your thoughts rather than letting someone else program your evaluation process. Too many shady operators get away with shenanigans when others are afraid to question the so-called “wisdom” of experienced “experts.” But if you want to be a savvy financial professional, you should be willing to take scorn much like the little boy who declared the “emperor has no clothes.”

Following these tips is not easy. You have to learn to use uncomfortable words and expressions, such as: “No” or “Prove it.” Or sometimes you have to humble yourself and make the dreaded admission: “I don’t understand.” But you will add value to your jobs, your career, and your relationships if you bring intellectual honesty to the table. “Nail everything down” rather than letting yourself be manipulated into pursuing a disaster, cleverly disguised as an “opportunity of a lifetime.”

Accountants are in the Business of Balancing

I was once a young auditor wrapping up audit field work for a client. My boss was a seasoned CPA and auditor, and he said we were going to thoroughly “clean up” the books during the audit for this particular client. Rather than adopting the standard auditor practice of “passing” on auditing certain accounts and discrepancies because they were “immaterial” to the overall financial presentation of the business, the manager of the business wanted us to examine each balance sheet account with a fine-toothed comb and adjust everything to the penny. This gave me an opportunity to learn a lesson that stuck with me about the essence of accounting and how to “think like an accountant.”

One of the balance sheet accounts was an asset account (classified as an “other receivable” account, as I recall) called “returned checks.” Our client was a retailer, and every once in awhile a customer would write the business an NSF check (a.k.a., a “hot check”). If the manager believed the business could collect on these checks, the bookkeeper would classify the amounts as “returned checks” that would show up as an asset/receivable on the balance sheet.

The balance of this account was fairly small, but my boss said we should look at it and adjust it to the penny. I asked the bookkeeper what the amount should be, and she realized the account on her balance sheet likely was wrong (i.e., she had not bothered to “tie it out” to the penny). She really didn’t seem interested in adjusting the amount to the correct balance, and she even attempted to make an excuse about the amount being “immaterial.” (She was apparently taking some auditing classes and learning about the auditor’s concept of “materiality,” but she must have missed the day in class when they talked about who had the prerogative to determine what was considered material. Hint: It’s not the bookkeeper.)

Finally, she gave me an amount to “write off” from the balance of that account because she thought there were some returned checks that the company would not be able to collect. I told my boss that she had given me an amount and that I was going to make an adjusting journal entry for the account.

Without missing a beat, he asked me specifically how the balance of the account should be calculated in order to determine what the adjustment should be. He was trying to get me to consider my source of information. Rather than relying on a “made up” number from the bookkeeper, he wanted me to dig deeper and ask specifically for a listing of the returned checks that the company believed it could collect from customers. And then, if we deemed it necessary, we could have dug deeper into the payment history of the patrons who wrote those checks to make a judgment about whether we believed the amounts would ultimately be collectible. (In one case, the patron had skipped town so we had a high level of confidence that his check would be forever uncollected.)

My boss gave me a memorable line: “We’re in the balancing business.” He meant that we needed to have clear, documented source material that would “tie” to the amount on the balance sheet for that account. We couldn’t take a made up number from the bookkeeper and adjust the account by that amount when we could not prove what constituted the ending balance as of the balance sheet date.

My next job after working for the CPA firm involved “assistant controller” work in which I had a similar process every month of reconciling each balance sheet account. At any given time I could point to my reconciliation spreadsheets to show exactly what made up the balance in each account. I did not merely balance the bank account and move on; every asset, liability, and equity account had a detailed reconciliation sheet (or in the case of inventory, receivables, and payables, we had summary and detail listings of each account so that we could tie the ending amount on the reports to the accounts on the balance sheet).

In summary, accountants are in the balancing business. Every number within the accounting system must “tie out” or “reconcile” to other elements of the system. By its very nature, double entry accounting requires balancing. And accountants develop tools, such as reconciliations, for checking their work and ensuring accuracy regarding every detail of the system.