Management | Business Solutions

Five Generations of Profit Improvement

Five Generations of Profit Improvement: Corporate Intellectual Growth

This is the dream of immortality. We want our companies and our jobs to outlive us.

Humans are driven inexorably by a biological clock from cradle to grave. Immortality is but a dream. Companies, however, may exist to serve generations of people and thus can reasonably dream of immortality. They are, however, no less fragile than humans and can suffer many ills in the hands of mortals.

Companies experience five stages of intellectual growth. Given the promise of immortality, I prefer to call them generations rather than stages. The five generational names speak to the focus of the effort of that generation: 1) work, 2) sell, 3) cut, 4) buy, and 5 think. Companies experience elements of each of these generations at all times but are defined by their primary focus at the time. They are not static and can not only grow from generation to generation, but can also regress as their actions, inactions, or the changing environments make a generation obsolete. The table gives a snap shot of each generation and illustrates that a company at of any generation includes a piece of the others within it.

Life is dynamic and so are the companies that populate its commercial world. As individuals grow and mature so do companies. But like people, companies do not always fit in every situation. Sometimes they must change and adapt to survive and prosper. I am often called in to help companies who are either seeking to grow to the next generation or recover a generation they have lost. The measure of success or failure is often seen in the bottom line profitability as a primary measure of long-term corporate value.

Here is a road to success through five generations of profit improvement and corporate intellectual growth.

This table shows the five generations of 1) work, 2) sell, 3) cut, 4) buy and 5) think. Five Generations of Corporate Intellectual Growth

stages of corporate intellectual growth — Five Generations of Corporate Intellectual Growth

Generation 1 – Work:

Struggling start-ups that may be months or even years old are still locked in to the dreamer’s dream that everything will be all right as long as “We keep our eyes on my dream and work hard.” This is the empire of dreamers and the dream counts more than execution. Leaders at this stage don’t even think about efficiency because that’ll come later. “All we need is a good value proposition and we’ll attract the capital to succeed.” The interesting thing is that in this Dot.Com world, many millionaires are made at this stage even if the company later folds. In the cold reality outside that world, tens of thousands of mundane companies go belly-up under the back-breaking labor of trying to make it work. The interesting thing is that without dreamers the company would not even exist. A failure to grow beyond the dream generation, however, is a sentence of death.

Generation 2 – Sell:

Capital may be getting scarce, investors may be impatient with losses, or the planned growth just isn’t there. Volume is the salvation. This is the domain of the salesman and the marketer. Now it’s time to get out there and sell. “All we need is enough sales to cover the fixed costs and we’ll be rolling in dough.” I’ve heard this from companies in their infancy as well as those that are decades old. The infants never knew any better but the older companies somehow lost their way. Dreamers may still be dreaming but the marketers and tacticians are now playing a bigger role.

Generation 3 – Cut:

The company may be on the verge of success having grown to this point or may have fallen from grace and is now in trouble for lack of satisfactory profits. Capital may have dried up or the stock market may have demoted the stock value. The obvious and immediate way to fix the situation is to improve margins. This is where the operators rationalize the company with rules and systems that impose efficiency. If the situation is dire, they will first cut the fat. They may have no choice but to slash and burn large pieces of the company. Waste, perquisites, products, business units, and, all too often, people may be shed. For companies that see change as a natural part of the ongoing process of evolution, this stage will not be traumatic while the operators work with architects to design a smoothly running machine. For others, that find themselves in trouble, this may be a painful and bloody process. This is where cost reduction projects are often born and dreamers are asked to step aside. Cost reduction more often sets the company back than it helps to move it forward and companies, even those on the Fortune lists find themselves cycling back and forth – stuck in a cutting mentality.

Generation 4 –Buy:

This is the stage when the builders and strategists are creating the company in the current image of the architects and the future image of the strategists. These should be good times. The company is buying machines, systems, and maybe even other companies to create an efficient and effective organization with a strong position in its markets. They will be engineering, bench-marking, and copying the best in class to become the best themselves. For those who continue on to the next stage, life is good. For those who rest on their laurels, life may run them over. The dynamic forces of the rapidly changing world can make a product, strategy, system, or company obsolete in the blink of an eye. Acquisitions can, and often do, fail to deliver on the strategists’ dreams. Companies may find themselves in a position where they are forced back a generation, to cut to survive. The opportunity is to think.

Generation 5 –Think:

Thinking is the key to immortality. A visionary leader knows that change and growth must be integral parts of the corporate culture and operating structure. The power here is the collective intellectual capital of the organization melded together toward a common vision of the future. People are working smart and they work together. Everything they do is tested against the questions of whether or not it fits the strategic plans and is a good investment of the resources involved. All of the energies of the dreamers, marketers, tacticians, operators, architects, builders, and strategists are focused on doing the right things for the corporation. They use all of their vital resources (financial, materials, space, time, knowledge, energy, and people) in a cost-effective manner. They are the Cost-Effective Organizations of the world. They have ongoing continuous improvement programs such as quality processes and the Profit Improvement Process. They prosper through change.

Summary:

Corporate immortality comes to those who harness their intellectual capital to embrace change though continuous improvement. The promise is to think sooner and move more quickly through the generations with diminished trauma and maximum success.

No matter what generation you are in at this moment, you must think of the future and aspire to Generation 5 today to achieve immortality tomorrow. A Profit Improvement Process accelerates intellectual growth. The mindset is vital.

Steven C. Martin
President & C.E.O.
Business Solutions –The Positive Way

Listen to my discussion on this topic with Jim Blasingame, The Small Business Advocate

Seven Easy Steps to Failure

Normalization of Deviance: How to Lose Your Business

Failure is insidious even for the smartest and brightest entrepreneurs. It sneaks up wearing a cloak of invisibility woven from the gradual acceptance of what used to be unacceptable. That is the normalization of deviance. Here are seven examples from society and business. It has never been easier to destroy your business so why wait? Here are seven easy steps and one bonus suggestion.

Remove performance standards & Incentivize lassitude. Yes, it has been difficult with over two years of government lockdowns. A virtual workforce based at home has been a winner for some businesses but others are suffering from employees who have essentially retired on the job with quiet quitting. Every low performer you tolerate sets a new low standard for everyone to emulate. Each now low becomes the benchmark to follow; straight to failure. Poor performers can drag down ten peers. A non-performing employee will change your business culture whether you like it or not.

Suggestions: Measure performance and clean house. Eliminate mediocrity as quickly as possible. It is sometimes easier to change people than it is to change people. Reconfigure your staff. Hire slow and fire fast. Adjust your people, process, equipment, product and/or hours to handle vacancies. Consider hiring older people or others you might not have included in the past. They just might surprise you with their work ethic and knowledge.
Spend, spend; spend like there is no tomorrow. Cash is fuel for every business. You are out of business when you run out of cash. Now is the time to be careful with your cash and your debt. The business may be past saving if you get to the point where those online offers for easy loans look attractive. Easy money can quickly become a bottomless pit of interest and fees.

Suggestions: Listen to the pessimists in your organization and the market to help you to understand the risk environment and pivot your spending. Listening does not mandate agreement but it will give you new information for better decisions. Listen to what the sales data is telling you to see how your customers are adjusting to this troubled economy.
Deny the facts in favor of the loudest voices. Be an informed consumer of the news. There are highly skilled propagandists out there with big megaphones. Repeating a lie does not make it true. Changing definitions does not change the facts. Listen to both sides with an open mind. Make considered judgments. Be careful of listening to only your own voice.

Suggestions: It helps to talk to trusted advisors and mentors. Be deliberate about checking your position and pivoting if needed. Run SWOT and PEST analyses as tools to help visualize the situation.
Risk it all. Just do it. Business has always been risky. Smart entrepreneurs analyze and manage risk.

Suggestions: Redo your market research and understand your business economics. Develop options and test the riskiest elements of your plan before you bet the ranch on them.
Deny that the rule of law is fundamental to life, families and civilization. It is a fact that civilization and freedom do not exist when the criminals rule the streets. Businesses cannot exist in chaos. Do you really want to live where those in power want to defund civilization?

Suggestions: Talk to the people in power and vote wisely and with your feet if necessary. Consider if it is time to move to a safer location.
Ignore inflation. The truth is that inflation is a killer. It wipes out businesses, jobs and bankrupts families. It destroys dreams and drives people to the bread lines. You are seeing the impact now at home and in your business. Know that this impact will not go away!

Suggestions: Raise your prices faster than your costs. Fire unprofitable products and customers. Apply the principles of profit improvement and look at every aspect of your business.
Cook your books like Enron and Congress. Clever bookkeeping can hide a lot of sins. Resist the temptation to keep massaging your business plans and forecasts until you get the numbers that you want. Reality wins.

Suggestions: Start with a blank piece of paper to create a new business plan.
BONUS: Deny that the American Constitutional Federal Republic and Capitalism work for society by creating jobs that raise us all up. Your job and your business depend on this as the very foundation of freedom.

Suggestions: Celebrate this great nation and work every day to make America great. Save your business and the jobs of the people who depend on you to continue to do the right things for the greater good.

Thank you to the work that you are doing to create and sustain jobs; even your own.

References:

JK Pinto – International journal of project management, 2014 – Elsevier

https://tinyurl.com/2p89x6pz

J Albright – Business & commercial aviation, 2017 – code7700.com

https://code7700.com/pdfs/bca/bca_normalization_of_deviance_2017-01.pdf

MG Everson, BA Wilbanks, RR Boust – AANA journal, 2020 – researchgate.net

https://tinyurl.com/4hdyrh36

K Davis, JK Pinto – IEEE Transactions on Engineering …, 2022 – ieeexplore.ieee.org

https://dspace.lib.cranfield.ac.uk/bitstream/handle/1826/18178/corruption_of_project_governance-2022.pdf?sequence=1&isAllowed=y

S SCOTT – 2021 – starlingtrust.com

https://starlingtrust.com/couch/uploads/file/the-normalization-of-deviance-starling.pdf

False Savings: How Improvement Program Expectations Lead to Disappointment

The current complaint with Six-Sigma Programs, Lean and other cost reduction and business improvement programs is that after a while the increased profits and reduced costs that were promised have either not materialized or have disappeared. A group of business improvement champions for a major global business recently told me that after ten years of effort they realized that the cost reductions and profit improvements predicted by Six Sigma projects were not sustainable. They gave a number of reasons given including a lack of hourly worker involvement and a lack of buy-in and their new corporate initiative goes a long way toward addressing those problems. These are probably true but I think there is much more to it.

One of the fundamental problems behind improvement programs of any kind is the inherent need to exaggerate the size of the anticipated improvement. I submit to you that this need to exaggerate is not only personal but corporate. The following sequence leads inevitably to backsliding down the slipper slope of reality.

Consider, for example, a Six-Sigma black belt. The company pays up to $60,000 to get the black belt trained and then tells them quite clearly that they have 12 months to generate $1 million in improvements to justify the investment. That becomes the objective against which their job performance will be measured. Pressure.

Now consider a department manager or business unit manager who has several black belts working for them. Yes, they now have several million dollars of improvements as part of their job performance criteria.

And so it goes up the ladder from the lowest to the highest levels of the company. Having spent hundreds of thousands of dollars to millions of dollars to implement this improvement program, progress against these goals is a constant item at the board meeting. “Don’t disappoint us now” is the top management mantra. Every bonus in the company rides, in part, on program success.

So, perhaps insidiously at first, the temptation to exaggerate creeps into the improvement estimates. The best of the forecasts are given and the downsides are brushed under the rug. Pressure is applied for success and even the round peg will fit into a square hole for a while. At some point some people just “game the system” to make the numbers.

The net result is that some projects succeed phenomenally, others succeed a bit, others fail a bit and still others fail phenomenally. The improvement program becomes a huge waste of resources and delivers ever-disappointing results.

The bottom line is that yes, you can have fatal structural flaws in your improvement programs such as a failure to engage and involve key people but in the end, no matter how well your program is designed, if you set unreasonable expectations, offer unreasonable rewards or penalties and do not scrutinize proposals with a very critical eye toward reality, you will end up creating a disappointment.

Do not fall into that trap. Make sure that every project you undertake for profit improvement is thoroughly analyzed by your accounting team to insure that the projected savings are real. Test your savings IQ with this short quiz.

Creativity: Are YOU Creative or Not?

Creativity – We are surrounded by creativity and creative people and don’t even think about it. Without creativity, we’d still be living in the pre-stone age era. Without creativity, your company wouldn’t even exist. And the object of this brief article is to do some myth busting and expose you to some powerful opportunities presented by the field of creative studies and application.

Those people and companies like Apple and Alphabet that understand the secret of harnessing the power of creativity are excelling in their fields while others are also-rans. How do you think they have flourished…by sitting still? Where do you want to be in the future? Creative methods can help you get there.

Myths and facts of Creativity – Are You Creative?

Myth: Creativity is only what artists and musicians do.

Fact: A creative product is anything that is new and useful for a time. Creative products include such things as ideas, new widgets, a new way to make widgets, new operating methods, strategic plans, cost reductions, problem solutions, and much more. We are surrounded by new creations almost every moment of our lives. Bad art may not be creative but an effective new business procedure is.

Myth: All truly creative people are geniuses, mad, or both.

Fact: We tend to focus on geniuses because they stand out so brightly. But the reality is that for every genius there are millions of us who are creative in a less dramatic way. We may not light up Broadway or preside at Princeton or Yale but we each, in our own personal way, truly make the world go.

Myth: Creativity is only the big stuff like what Picasso, Einstein, and Bell did.

Fact: Smaller incremental changes may not be as obvious but are still creative as long as they fit the definition of being new and useful for some period of time. Look at what Sony did with the tape recorder to take it from two cubic feet and 25 pounds down to the current Walkman designs. Most of the changes were one small move at a time…thousands of times.

Myth: Creativity is what other people do. I’m not creative.

Fact: We are all creative in our own ways even though some are more prolific than others. It’s a matter of creative style. Some people prefer an innovative style. Like many research scientists, they are more likely to prefer to create major changes like radical new inventions. Others prefer an adaptive style and, like many people in accounting, are more comfortable with making minor changes. Do you really want your company Controller to use radically creative accounting? No, you want him to do it efficiently and he has probably created methods to accomplish that.

Myth: Creativity cannot be understood or learned.

Fact: After about 50 years of serious study and application, creativity has been well understood and is being taught every day. People are being taught how to understand they creative style preferences and how to use tools and methods that allow them to be more effective in skills such as idea generation and problem solving. Creative Problem Solving is one such method that has been proven effective.

Myth: Solid, practical solutions to problems don’t involve creativity.

Fact: When you have a problem, the fact is that you probably need a new idea and you are going to use creative skills to find that new idea. The more complex the problem, the more you can benefit from the tools of creativity. They can help you understand the problem, generate ideas, and take it to completion. Creativity is practical and real.

Creativity – what’s it to you?: Well, it can be your ticket to success.

Steven C. Martin

Business Solutions – The Positive Way

High-Value Purpose-Driven Meetings

Even with a good heart and the best of intent some people can derail a meeting if allowed. See if you recognize any of these in your next meeting. Consider how to use the seven strategies to stay on course in spite of them.

Your meetings may not be productive

Meetings often waste more time and destroy more value than they actually create. Here are seven strategies beyond the agenda that help meeting leaders to stay on course when the five common time consuming characters work to derail us.

Seven Strategies Beyond the Agenda

Begin With Purpose: Reiterate global and meeting mission and vision to set the stage. Great leaders ignite commitment and enthusiasm around the shared purpose for the organization and the group. Begin with “why” and insure value in understood before you begin.
Role Expectation Setting: Attentive listening is the fundamental expectation of all attendees. Teach your membership how to play their appropriate role in meetings. These may include the chair, presenter, participant, guest or student. It helps for everyone to understand their role and when they are expected to participate by speaking or by listening. Empower everyone with the skills and expectation that they will actively engage in keeping the meeting on track.
Focus: Mandate a singular focus on the agenda topics at hand. Explain this before and during the meeting and make sure that it is acknowledged. Understand that some of the time consuming characters (see below) may not have heard you.
Chair Facilitation: Empower whomever is leading the agenda to act to keep the meeting on time and on topic. Redirect the time consumers to the appropriate time outside of the meeting. A “parking lot,” discussions on break or other meetings are often more appropriate.
Preparation: Do not allow committee work in a general meeting. Make sure that this is done before hand with electronically distributed reports and summaries in advance so that only the highlights need to be covered in the general meeting.
Invitation: Invite only those who have something to contribute and/or gain from the meeting.
Be Results-Oriented: Clearly communicate the expected outcomes for each meeting. Focus on those results; the “why.” Is it to deliver information, to educate, to reach a decision, form a consensus, to entertain, to socialize and develop comradery, or other defined outcomes? Design the agenda and clarify the roles to meet those desired outcomes.

Close with action. Summarize and communicate with next-steps and expected actions. Thank everyone for their contributions. Evaluate how well you all did toward achieving the purpose of the meeting. Use this as an opportunity to learn.

Five Common Time Consuming Characters

The Pontificator: Their opinion must be heard and right now.
The Talker: With no sense of time or the agenda clock, they love to include the gory details when they have the floor. Or they may have side conversations during the meeting.
The Distracted (AKA The iPhone-ator): So tuned out that their potential contributions are lost. They may interrupt with their comments when least expected if at all.
The Hijacker: Takes over the floor to focus on what they want, damn the agenda.
The Good-Hearted: Feels that everyone should be heard when they want to speak no matter how unrelated it is to the meeting purpose.

Summary

Time is the most precious individual commodity we have and it is multiplied across all of those who are attending your meetings. I’ve presented but seven strategies. There are more. How do you achieve High-Value Purpose-Driven meetings? How do you deal with a time consumer?

The Astounding Cost of Passive-Aggressive Behavior

Passive-aggressive behavior is one of the most insidious and costly forms of sabotage a business can encounter. I have personally seen individuals and groups cost their employers millions of dollars, damage the business reputation and actually put people’s lives at risk with these behaviors.

A detailed study by Booze Allen Hamilton showed that entire companies can take on passive-aggressive traits. These passive-aggressive companies fare poorly compared to their peers with about half less profitable. They are marked by second-guessing of decisions, poor communication, poor decision-making and a general ability to make progress. The best workers leave.

Passive-aggressive personality disorder (also referred to as negativistic personality disorder) is a controversial personality disorder marked by a pervasive pattern of negative attitudes and passive resistance in many interpersonal situations both on and off the job. The passive-aggressive can smile and say “yes” while they have absolutely no intention of doing anything other than “no.” They can ruin your life and damage your company if you let them.

You may refer to the passive-aggressive person in less than endearing terms as, it seems, they try to turn your life upside down. The passive-aggressive is one of the most distracting, disruptive and generally unpleasant personality types that most of us ever come into contact with. Since the passive-aggressive doesn’t wear a sign, you’ll only recognize them by their behavior. Some their behaviors are listed in this list.

Common Passive-Aggressive Behaviors

·      Sulks or argues
·      Intentional inefficiency
·      Complains without justification of unreasonable demands
·      “Forgets” obligations
·      Believes he is doing a much better job than others think
·      Resents suggestions from others
·      Fails to do his share
·      Unreasonably criticizes authority figures
·      Avoiding responsibility by claiming forgetfulness
·      Blaming others
·      Chronic lateness and forgetfulness
·      Does not express hostility or anger openly
·      Fosters chaos
·      Making excuses and lying
·      Obstructionism
·      Resentment
·      Sarcasm
·      Sullenness
·      Mad at the world
·      Envious and resentful
·      Feels cheated by life
·     Procrastinates
·     Alternately hostile and clingy

A passive-aggressive may not have all of these behaviors, and may have other non-passive-aggressive traits. Cecil Adams writes: “Merely being passive-aggressive isn’t a disorder but a behavior — sometimes a perfectly rational behavior, which lets you dodge unpleasant chores while avoiding confrontation. It’s only pathological if it’s a habitual, crippling response reflecting a pervasively pessimistic attitude”

Very few individuals have the disorder but all too many people have the bad behaviors associated with passive-aggressive personality. And, as the saying goes, one bad apple will spoil the bunch.

Dealing with the passive-aggressive person:
I agree that the passive-aggressive response is a great way to get out of doing things. Just say you will and then don’t. It’s often simpler and more effective than justifying your real thoughts to a less than receptive audience.

The problem comes when the passive-aggressive tries to take over your life to suit their needs. You need to recognize the situation and take action.

As an individual you have very few choices in dealing with passive-aggressive behaviors by others:
1. You can stop providing a payoff to the passive-aggressive by not giving in to their manipulation. You teach people how to treat you – and some may learn.
2. Ask them to stop and pray that they’ll change their behavior toward you. Yes, I said “pray” because the truth is that you can do essentially nothing to change other people.
3. You can withdraw from the situation. Take care of yourself and associate only with people who treat you as they should. This may be the only solution in extreme cases.

As a co-worker you may find your own satisfaction and career at risk because of the actions of passive-aggressive co-workers. Options may include:
1. Asking the offending party for cooperation and better behavior.
2. Document situations and clearly identify responsibilities to substantiate a claim to management.
3. Remove them or yourself from the situation.

As a boss or employer you carry the responsibility to take action.
1. Don’t hire passive-aggressive personalities in the first place.
2. Make it clear that the passive-aggressive behaviors are not tolerated in your organization.
3. Find out who is passive-aggressive and offer guidance and corrective action promptly when you observe these negative behaviors. The passive-aggressive is often very skilled at flying below the radar so you’ll have to look hard. A good place to start is with departments, groups or teams that are not meeting their goals. Then you’ll have to be a detective to find the truth.
4. Take disciplinary action quickly when appropriate and if necessary following your company employee policy manual.
5. Make sure you company has clear lines of communication, well delineated responsibilities and well defined decision making.
6. Remove recalcitrant offenders from the organization.

My first working title for this paper was “Passive-aggressive Poison.” That’s really what these behaviors do to relationships and the workplace…poison them. Take the cure before it kills you.

What are you going to do now that you know better than to tolerate such behaviors?

In my real-world experience, applying the Profit Improvement Process is an effective and efficient way to expose and neutralize negative behaviors.

Who is Stealing Your Profits

The question for you is not “if” your profits are being stolen but the only question is “Who is stealing how much?”

The estimate of embezzlement for the US alone in 2018 was almost $50 billion. This included robbery, cargo theft, larceny and burglary. The top incidents were organized retail crime, employee theft, fraud, burglary, counterfeiting and robbery. Note that employee theft far exceeded the losses due to robbery. In a 2017 survey by Hiscox* the median dollar amount for small or mid-sized businesses (under 500 employees) was $289,864. The median loss for companies with over 500 employees was estimated to be $452,025.

Hiscok provides the following common characteristics to look out for:

Intelligent and curious – eager to know how everything in the office works
Extravagant – often flaunt their wealth
Egotistical risk-taker – rule breaker on and off the job
Diligent and ambitious – beware of the person who does not take vacations
Disgruntled – feel treated unfairly and may want to even the score

I’ll add one more from experience: They are the manager, accountant, controller, bookkeeper or clerk who just can’t get the reports straight and on time. They love disorder in which to hide their own dealings.

According to the National Retail Federation retail goods shrinkage of $48.9 billion is due to four major sources: employee theft (30%), shoplifting (36.5%), administrative error (21.3%), vendor fraud/error (5.4%) and unknown loss (6.8%).**

None of these figures include the billions of dollars lost to employee time that is deliberately wasted, time card falsification, inflated expense accounts, office supplies that end up at home and countless other ways in which employees waste company time and money. Excuse me while I check my FB account…

A number of years ago a senior sales executive (over 25 years with the company) warned me not to make him work from home because he assured me that he would extract the “cost” from the company in any number of ways that the company could never detect. I was no longer with that company when that move was finally made to save money so I don’t know how much, if any, this long-term employee extracted in “payment.” I often wondered which of his supervisors allowed him to harbor such a terrible attitude.

Just within this year two priests in my city have been indicted for embezzling hundreds of thousands of dollars from their churches. Prevention is a wise thing to do and don’t forget to help keep your employees honest with good systems and audits while you are locking the front door. Embezzlement and shrinkage is just two aspects of the element of Loss which is part of the Profit Equation.

How much of your hard-earned profits can you afford to allow the thieves within and outside your business to take?

References:

*THE 2017 HISCOX Embezzlement Study

** 2017 National Retail Security Survey

Reconcile Now or Pay $600,000

A local law office recently reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.
A bank reconciliation is an opportunity to detect fraud and theft.

Either of these reasons should be adequate so don’t let reconciliations fall through the cracks. Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

If your business has been subject to loss by theft at some level from office supplies to money, you are probably the only one in the world. Think about it. The theft of time happens every single day.

Reconcile Now or Lose Big

Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

A local law office reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

Once you look for them, you will see that the news feeds are filled with similar stories of embezzlement and the miss-use of funds.

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.
A bank reconciliation is an opportunity to detect fraud and theft.

Zero Base Budget for Better Profits

Increase your profits with new planning. Zero-based budgeting, that is building your budget from the bottom up based on the demand drivers of your business is a gold standard for planning. If you aren’t doing it maybe it’s time to start with a single department.

You perpetuate problems when you start your budget from what you did the last period.

Zero-base. When is the last time you zero-base budgeted your entire company? How about a single department?

Zero-based budgeting, that is building your budget from the bottom up based on the demand drivers of your business is a gold standard for planning. If you aren’t doing it maybe it’s time to start with a single department.

I raise this issue now because many of you should be thinking about the quarterly or annual planning cycle and this is none too soon to think about improving it.

The opportunity is to rethink your entire business (or department) from the ground up in the context of the forecast conditions. You are hopefully smarter, faster; more capable than you were the last time you planned so you can build those efficiencies into the new plan and reap the rewards on the bottom line. Yes, you have to trust that top management (maybe that’s you) will back you up and support you when you take risks.

The easiest thing to do is to stick with the status quo and just add inflation onto last year’s budget. The quickest way to budget yourself out of business and your competition in is to do just that.