20050722 Barrett Peterson Special Rreport
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20050722 Barrett Peterson Special Rreport



Vies on Selected Finance and Accounting Topics

Vies on Selected Finance and Accounting Topics



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20050722 Barrett Peterson Special Rreport 20050722 Barrett Peterson Special Rreport Document Transcript

  • Finance and Data for Dummies Smart People Some Ways to Use Financial, Accounting, And Other Data to Improve Business Processes and Profitability Barrett Peterson, C.P.A. 847.259.2878 brpclp@ix.netcom.com___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 1847.259.2878 Published February 2005
  • Finance and Data for Dummies Smart PeopleIntroductionFollow the MoneyKnow Your MetricsChanged Systems Require Changed Processes and Changed PeopleThe Many Faces of Cost – Price is Not Cost Different Costs for Different Decisions The ABC’s (and GPK’s) of Knowing Your CostsAchieve Excellence by Thinking MarginallyThe KISS Rule LivesWhere’s Herbie?Let’s Make a Trade (Off)Know Your DebtsControls and Counting What CountsDo DiligenceAbout the AuthorAppendix___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 2847.259.2878 Published February 2005
  • Finance and Data for Dummies Smart PeopleIntroduction:We all know a company without a clear mission won’t go anywhere. Once is has its mission, it nexthas to get the word out to the right people or it still won’t go anywhere. Lastly, once the word is out,people need an efficient, reliable system to run the business day to day and achieve that mission andserve both customers and employees.But, how do you know, really, that it’s all working right?Numbers!We all know the “bottom line” is a good indicator of how successfully a business is running, but that’sjust one of many important numbers.There’s an ART to numbers. Numbers sometimes show what is working or what needs attention.Sometimes, however, they hide the problems and the ways to correct them.Numbers are my friend, and I love them. I have 22 (speaking of numbers!) “observations” aboutnumbers in business. These “observations” can reveal hidden pools of money, dangerous money“leaks”, business lessons, and all kinds of other information. Here are a baker’s dozen of myfavorites.I hope the baker’s dozen collection of “rules’ in this report can help numbers become your friend too.The remaining nine are listed in the appendix on page 12.Follow the Money:Sometimes, very basic concepts can get lost in the complexity of modern business accounting. Oneis that we want to expand an initial sum of cash. Accrual rules sometimes confuse, and morecomplicated long-term items like pension plans can make business planning more difficult.However, fundamentals remain. One example is minimizing non-cash assets and assuring theirconversion back to cash. All non-cash assets recorded under accounting rules bear some risk ofbeing turned to cash for less than recorded amounts. This rarely happens to recorded (orunrecorded, discussed in Know Your Debts below) liabilities.To “earn their keep,” assets need to be actively used to generate profits, either directly or by helpingto minimize the cost of needed functions. Having more assets than needed is like putting cash inyour mattress. Just like money in the mattress, these assets produce no income and can be stolen,lost in fire, or damaged by accidents or even normal deterioration. “Excess” assets are frequentlyfound in property and equipment and in working capital, particularly inventory and accountsreceivable.Excess property and equipment can include vacant space and unused or under-utilized equipment.Whether these items are “owned” (assets) or leased (see Know Your Debts), they are equally costly.Sell or sublease unneeded property and underused equipment to minimize costs and provide cash formore useful equipment.___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 3847.259.2878 Published February 2005
  • Minimize inventory and accounts receivable. Having “Too much” inventory or accounts receivablesincreases the risk of collecting less than its full value due to discounts, allowances, and disputes forreceivables, and damage, deterioration, obsolescence, or market changes for inventory.When I went to work for a printing company, I found that they had an average of 100 days sales inreceivables - $1.5 million more that 30 days worth. They suffered losses from disputes, forgotten“agreements”, and allowances larger than needed.I instituted procedures to clarify terms at the time of order, and made sure each customer received acall 10 days after billing, both to resolve issues and to act as a reminder. Within six months, thecompany eliminated that $1.5 million excess.That same company had inventory on the books at twice the industry average, an excess of $500K.Part of the problem involved raw materials (paper); the other part was work-in-progress. The excesspaper accumulated from orders involving non-standard paper. “Left over” partial rolls were put backin inventory at full value. There were no plans to use the partial rolls.I insured that job pricing reflected all the paper to be bought, for good product (yield) plus make-readyand production waste. We charged the customer for all paper purchased. The left over partial rollswere recorded at $1 each to allow tracking and insure eventual disposition. We then systematicallyused or scrapped the partial rolls to minimize storage needed and prevent use of the “wrong” paperon a later job.The work-in-process accumulation resulted from printed rolls waiting for “finishing.” My solution wasto re-think the scheduling model and realize the company was not (just) a “printer” and that finishingtime cycles were longer that printing cycles (a different rhythm). This required components addedduring finishing to be ready much closer to the start of printing.Do you have underperforming capital tied up?Know Your Metrics:Most businesses use performance measures of efficiency for operations and profitability for financialresults. Each measure is intended to focus on a key performance driver, but each also has its limits.It is critical to focus on advancement of company-wide performance, rather than just on optimizing alocal process. Such optimization can actually be detrimental to the company’s overall profitability.Let’s look at two categories of metrics: production efficiency measures and return measures.Production efficiency metrics – While measuring utilization, speeds, and production output per unitof time is useful, this can result in unintended problems. These include: excess inventory fromaccumulated work-in-process; production of unwanted product items because they are quick andeasy to make; overproduction of easily-made low margin items; quality problems resulting from toomuch speed and too little attention to output quality; and ignoring equipment maintenance in order toimprove short-term statistics at the expense of longer-term performance. An important principle is that machine or operation maximization is not always the same asmaximizing margin and profit (please see the upcoming discussion in Achieve Excellence byThinking Marginally). Measurements of profitability are critically dependent on the base (the denominator), as well as“appropriate” definitions of income. Recorded accounting values are often unreliable measures ofcapital invested or replacement capital requirements. For example, they will favor older facilitieswhich are more extensively depreciated for accounting purposes. But, such facilities may beinefficient, inflexible, and require far more maintenance. Return measures can also discourage___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 4847.259.2878 Published February 2005
  • proper equipment maintenance and needed research and improvements to products, processes, andinformation systems. The cost incurred for such activities often benefit future periods or otherbusiness units. Return measures are best applied to larger units in the company. Many operatingfacilities or departments are better measured by two metrics: margin dollars generated per unit oftime and adjusted total margin divided by estimated replacement capital costs (See AchieveExcellence by Thinking Marginally).Changed Systems Require Changed Processes and Changed People:New and improved information systems are a significant component of programs to improveperformance and profitability. Too often, the focus is inappropriately placed on the software, andcomputer and other hardware While good choices of software and hardware are important, it iscritical to identify and plan how these changes will affect operating processes, the interaction ofpeople and organization units, and the skills required of the employees. Operating processes andorganizational structure may require significant change. Training is nearly always required to reducefears and gain acceptance of change. Some people may prove unable or unwilling to adapt despitetraining, and must be replacedWhen I started with a contract manufacturing company, it had very limited, basic accounting systemsand had operated at essentially break-even throughout its nineteen-year life, with one bankruptcyabout seven years before I arrived. The company had a faulty mechanism for product pricing andquoting, a haphazard and inconsistent production planning system, and inconsistent purchasingmanagement. There was no data on product, product class, channel, or customer profitability.Product sales volume data was available but unused.Here are some of the steps I took to address these issues:  Designed a product pricing model which calculated “target” price using both a purchased material plus mark-up approach, and a purchased material plus resources required – using informal estimated activity based cost data – approach for management use.  Devised a database and series of reports to analyze product sales by sku, product class, and customer.  Devised a database and series of reports to analyze purchased material components required.  Devised an intermediate-term production plan and a short-term production scheduling system.  Developed purchasing requirements and plans, together with monitoring reports, to enable best practical price/quality acquisition.  Developed analyses of outbound logistics patterns to assure shipping load efficiency and explore freight cost reductions.  Held numerous training and planning meetings to teach and instill the revised focus in the management team.My efforts over a twenty month period, were key to positioning the company to make pre-tax incomeof $400K per year, and enabled the company to remain in business. These efforts required arevision to the business model and operating concepts of the people in the organization, and requiredan anticipatory focus rather than a vague awareness, combined with a reactive approach as problemsemerged. Concurrent development of a system for documentation of the manufacturing process tomeet FDA regulations reinforced the importance of the new conceptual focus and business model.Replacement of one of seven people was needed to complete the transition.___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 5847.259.2878 Published February 2005
  • The Many Faces of Cost:Cost measurement, cost management, and cost accounting are elements of crucial businessdecisions often made more difficult by misconceptions, faulty analyses, and reliance on outmodedpractices. It is important to understand that cost is not just a single “thing,” the price of purchase.Rather, purchase decisions can, and should be, analyzed from different perspectives. Someaccounting conventions and practices ignore important factors. For example, cost accountingconventions regarding cost allocations developed and used for financial reporting to capital suppliersand for tax compliance are not useful in determining, and are often seriously at variance with, a morerealistic determination of “actual” costs for process management and pricing.Price is Not Cost -We “know” this, but often forget it. The price tag on an item is often much different than the cost ofusing it. Examples abound from manual razors to ink jet printer where the cost of the base item is notthe expensive part: the consumable supplies are. Electricity for businesses is often purchased on an“industrial” rate schedule under which more than half the bill for light manufacturing and commercialproperties can be for the “demand charge” and not the direct price of energy (KWH) used. Leasedassets often cost more than the stated rental. There may be a “click” charge for photocopiers, ortaxes, automatic escalators, and operating expenses (watch the management fee), in addition toproperty rental. Purchased material converted in manufacturing can cost far more than price if thequality is inadequate and final product is wasted or production processes slowed or interrupted. Thecost of employee time used is always higher than their pay rate due to paid time off, including breaks,as well as payroll taxes, benefits, worker’s compensation, and support costs. Property andequipment purchases often require significant shipping and installation costs, as well as financingcosts and impacts on property taxes and insurance costs. Understanding the interplay of theseelements helps with purchasing resources for the lowest total cost to the organization over time.The purchasing plan for the contract manufacturer described in the section above includeddisqualifying the lowest bid bottle supplier for one bottle size because of the supplier’s inability toprovide consistent satisfactory quality. The company had incurred higher costs because of theregular high waste rate and repeated line stops or slow-downs.Different Costs for Different Decisions –Frequently, we can ask the obvious question: the cost of what? Popular notions of cost tend to focuson the things that are acquired (objects of expenditure), which along with organizational units likedepartments, divisions, and companies often form the basic structure of accounting systems. Asecond popular focus is “the” cost of a product or service, which typically requires allocation of thecost of items or activities not directly or obviously attributable to the product or service.The methods providing for the allocation of costs form the basis for confusion over the determinationof costs relevant to a particular decision. Accounting records built around “objects of expenditure”,reporting by organizational units, and the need to allocate costs to products are often an unreliablesource for decision making. The key idea is to identify the cost of the applicable elements of the issueor activity (cost object) for which a decision is needed.A large multi-plant manufacturing company with several facilities was considering closing or sellingthe weak performers. My analysis, however, provided unexpected results. It turned out that someof the weak performers were actually positive contributors to earnings and cash flow if certain costswere correctly evaluated. What hadn’t been previously considered was that certain costs wouldcontinue whether or not these facilities were open. Instead of closing two facilities that had beenselected for closing, my analysis showed that it was more profitable to keep them open and improvetheir operations.___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 6847.259.2878 Published February 2005
  • ABC’s (and GPK’s) of Knowing Your Costs -Cost accounting and cost analysis has been around a long time with a history of focus on productcosting by employing an “object of expenditure” account structure organized by organization unit andsupported by one or more “pools” of costs to be allocated. All costs are for something (the object)and incurred for a reason (an activity). The “reason” is usually part of the actions needed to obtain ormake the product or service to be sold. The “simplification” made by traditional cost accounting is toremove the reasons – activities – from the system and to assign the costs of things to products andservices by direct assignment and broad averaging allocation. This “simplification” workedreasonably well for manufactured items when marketing and distribution were less a factor and directmanufacturing labor comprised the majority of “things” needed and acquired. Today, organizationsare larger, production and distribution more sophisticated, product selections more varied, customersmore numerous and more geographically dispersed, and sources of supply increasinglygeographically distributed. As a result, direct labor has become a much smaller component ofproducts and services.The continued use of the historical techniques has resulted in increased distortion and error in thesystem which informs pricing and other business decisions, as well as just the “cost accounting”results.To compensate for these distortions, Activity Based Costing (ABC) and its extension Activity BasedManagement (ABM) have been developed. This body of practice and theory arose from practices inJapan and usage by large multi-national companies The basic notion is to assign costs directly toactivity “drivers” (units of measure like orders processed, set-ups completed, invoices processed,calls handled, etc.) and then assign activities to cost objects – products and services being one –based on their use of the activities’ drivers. The similar German method – built into SAP for instance– is called Grenzplankostenrechnung (GPK); try saying that three times at any speed! Allocation stillexists as there are still activities that support organization units – facilities, divisions, channels,companies – and have no identifiable basis for direct assignment to products and services.Development of the pricing model and the production planning system described above in ChangedSystems Require Changed Processes and Changed People employed an initially informal “backof the envelope” design of activity measurements built from observations, conversations withoperating personnel, and estimates to obtain better estimates of resources used in productmanufacturing in order to better calculate “target” prices. Refinements of these initial measurementscontributed to both the improvement of the pricing model and to improved capability for the productionplanning and scheduling systems developed.One insight from activity based analyses is the high cost of production machine make-ready as acomponent of manufacturing cost. One commercial printer recognized that changing print cylinders –large metal rollers of different circumferences used in applying ink - was a large cost, and changingthe inking stations for changing colors from job to job was fairly costly. We addressed this cost andscheduling problem by revising the production scheduling to run jobs using common cylinder sizessequentially and further trying to minimize the number of ink stations that required changing. Thischange both reduced costs and improved total plant output contributing substantially to the turn-around to break-even of an operation which had been losing $1.3 million/year on $13 million of sales.Achieve Excellence by Thinking Marginally:Margin analysis is time frame driven with much of the more frequently employed analyses focused on“short” time frames, often a year or less. Margin analyses combine concepts from direct/indirect costideas and variable/fixed ideas (arguably a “special case” of direct/indirect). The principal premise isthat certain costs – indirect especially if they are “fixed” – will change little if at all during the timeperiod under consideration, while other costs and revenues will vary, usually with output or saleslevels. Profits can be increased by increasing margin dollars relative to the unchanging level of___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 7847.259.2878 Published February 2005
  • indirect costs. Profitability can be improved by expanding average margin per unit by changing price,cost, or mix, or increasing the units sold. The principal caution to keep in mind is to avoid makingshort-term practices permanent or to cause an adverse long-term effect. Another caution is to notignore those “unchangeable” indirect costs. A third is to be aware that increasing direct margin perunit by replacing direct cost with indirect /fixed costs increases the level of sales (units) required tobreak-even. Pricing of one-time efforts, particularly for non-standard products or services can focuson adding some contribution margin without having to fully reflect allocations of indirect costs. Careneeds to be taken to not harm market pricing or push too much volume to lower priced/lower marginsales. This latter process, repeated, can develop into a “death spiral”Large public accounting firms once priced “off-season” work, particularly for non-traditional clients, atlower hourly rates to add margin dollars to a full price base which was seasonal, while staff levelswere unchanged throughout the year. These discounts disappeared over time as seasonalitydecreased significantly, in part due to newly developed services which were not as tied to thecalendar as were audits.Margin analysis at a folding carton manufacturer encouraged the company which had a significantbottleneck operation (a cutting press was their “Herbie”) to market a product mix tilted toward highermargin offerings even at the expense of individual production department efficiency measures(machine driven).An analysis of pricing and margins at the contracting manufacturer discussed above in ChangedSystems Require Changed Processes and Changed People identified marketing opportunities toshift emphasis from one sku to a nearly identical sku with the same production efficiency but asomewhat better contribution margin after considering direct manufacturing, customer service, andfreight costs.The KISS rule lives:When overwhelmed with accumulated numbers – the illness known as rampant collection andcompilation – solutions become more complex and more difficult to ascertain. Often the “right hand”is working in opposition to the “left hand”. Carefully selected and simpler numbers beget simplersolutions. My favorites include margin dollars per hour and a reasonable measure of return – thinkEVA (economic value added) – based on replacement [not book] value of capital used.Where’s Herbie? (From The Goal by E. Goldratt)Numbers used properly can suggest where bottlenecks are wasting time, money, and customergoodwill. It’s not when the biggest, strongest, fastest guy finishes – it’s when the last guy gets to theend and what’s slowing him down.Let’s Make a Trade-Off:Business operations and decisions are full of trade-off considerations. Greater short-term efficiencycan sometimes be obtained at the cost of higher maintenance or more frequent break-downs. Qualityrequirements and measures are often based on trade-offs between initial costs and “lifetime” or totalcosts of ownership considerations. Capital outlays for process improvements, including costreduction and quality improvement, are trade-off decisions. Inventory management frequentlyrequires balancing out-of-stock effects versus obsolescence, damage, and capital carrying costsimpacts. Margins analysis, as discussed above, frequently evaluates trade-offs.The contract manufacturing company discussed earlier (Changed Systems Required ChangedProcesses and Changed People) had historically been reluctant to spend capital dollars or toschedule “heavy” maintenance apart from a break-down.___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 8847.259.2878 Published February 2005
  • The solution to one seasonal large sale’s production for a single customer, however, illustrated thereasons to move away from those old mind-sets. During my second week, we made a “snap”decision to make a moderate purchase of capital improvements to a filling line after a review of theprior years’ waste of finished product, production slow-downs, and delivery delays for that customer’sorder. This decision improved the profitability of the work for that customer’s large annual order bygreatly reducing wasted product and permitting efficient filling operations. We also greatly improvedcustomer satisfaction by delivering when promised.We later scheduled major maintenance at times when production requirements were as minimal aspossible, keeping our machines running at design speeds without jams and other problems.Know Your Debts:Cash and cash flow is the foundation measure of business operation, and its life blood, as previouslydiscussed in Follow the Money. Pursuing the goal of expanding cash acquired/on hand requires athorough understanding and measurement of required cash outlays for items and services acquired.These items can be acquired for cash or pursuant to some contractual form requiring future payment.Accounting principles and financial reporting rules can obscure the commitments made for outlays tosatisfy fixed (and variable) payment obligations. Not all are defined as “debts” required to bereflected on the balance sheet. The problem of visibility has been greatly increased by twenty-fiveyears of development of new and increasingly complex contracts, financial products and agreements,forward contracts, and mathematical model based financial products. These are illustrated bycollateralized debt obligations (CDO’s), special purpose entities (SPE’s) and other structured financeproducts.An older and more common (with some new wrinkles) contract form is the lease. All these forms offinancing agreements are more complex that the original historical structure of buying (acquiring titleto) an item and issuing a note (“debt”) for the price. Accounting rules development has experiencedgreat difficulty keeping up with these more complex agreements. These agreements all provide useof an item expected to be useful, and payments are not dependent on the actual utility or use of theitem or right acquired. While not recorded as “debt”, these agreements require cash outlays just aspredictable as other agreements that are recorded as debt.A company operating a group of retail stores had significant lease obligations for their store space.These “triple net” agreements also contained periodic increases (escalation) provisions for the baseoutlays (rent), imposing increases in outlays in later years of the agreement. The business,accordingly, faced increased costs for their space (rent, not depreciation) in addition to rising propertytaxes and facility operating costs (including an owner management fee) which were billed as add-ons.The company had to develop a plan to increase their margin dollars generated by either increasedprices or increased volume - more sales per square foot. In a very low inflation environment, thisstructure can produce adverse economic results.Controls and Knowing What Counts:Internal controls have achieved high visibility in the past four plus years following several huge, highprofile corporate failures and a rash of scandals. These failures required restatements of reportedfinancial results and exposed dubious business practices and weakened audit procedures. Whilecomplex transaction structures, unclear, ambiguous, and insufficient rules, and very questionablejudgments have frequently been involved, the failure to employ, or comply with control proceduresand standards is a common theme.Passage of the Sarbanes-Oxley Act of 2002 and the establishment of the Public CompanyAccounting Oversight Board (PCAOB) has established, for public companies (initially), requirements___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 9847.259.2878 Published February 2005
  • to document, test and evaluate, and report on the effectiveness of their internal controls over financialreporting, as well as imposing penalties on certifying officers for willful violations and failure toperform due diligence. Auditors must report on management’s evaluation of the company’s controlsover financial reporting. Controls on financial reporting are part of the company’s system of controlsand rest on the operation of other controls over:  identification of transactions and reportable events,  authorization and approval of transactions,  timeliness, completeness, and accuracy of transaction processing,  access to and use of company assets and resources,  limitations on incurring obligations,  reconciling balances to detail,  monitoring results to plans,  providing training,  establishing organizational controls like segregation of duties, and  reviewing operations.The new requirements rest on a long history of development of standards and practices whichculminated in INTERNAL CONTROL – AN INTEGRATED FRAMEWORK published by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), itself an outgrowth ofthe Treadway Commission established in 1985 after a series of high profile financial reportingscandals. Both were preceded by the Foreign Corrupt Practices Act (arising from a public scandal)and a body of accounting and auditing literature, parts of which reflected historical audit failures.The contract manufacturing company discussed earlier had a significant recorded amount for its(bottle) label inventory when I arrived. A physical inspection clearly indicated a large amount of old,apparently obsolete or unused labels. Further investigation revealed that the recording of receiptswas often inaccurate and regular physical inventories had been confined to confirming a box of labelswas present without verifying its contents. The procedures were inadequate, and the few presentwere not properly followed. This circumstance prompted three concerns. Approximately one-third ofthe labels present were unusable or obsolete, requiring a write-off; there was no reliable system toprevent a recurrence; and label control was an important required manufacturing procedure underFDA rules to which the company was subject, creating a risk of regulatory sanctions for non-compliance. Revised procedures for label ordering, receiving, rotation, and physical inventorycounting were put in place, and the useless labels destroyed. The quality control function wascharged with closer supervision of label handling and record keeping. These actions prevented afurther build-up, and avoided criticism at our next FDA inspection.Do Diligence:Performance of due diligence is an important part of completing significant “one-time” transactionsand in developing reliable and effective vendor relationships. Due diligence includes identifying andevaluating the people you are dealing with, negotiating the needed structure for thetransaction/relationship, evaluating financial capability and reliability, and insuring the appropriatedocument correctly reflects the negotiated structure and is completed and in place. Manytransactions call for effective financial analysis which may be done by company personnel and/orselected external experts. Management needs to be sure such work, including that of the experts, isdone thoroughly and effectively. In recent years we have seen a decline in effective due diligencedriven by sales concerns, time pressures, perceived pressures to satisfy market interests, a choice toignore fraud possibilities, and an over-reliance on verbal assurances and appearance aspects. Duediligence may lack glamour, but done properly can minimize significant adverse surprises, includingthose financially fatal to an organization.___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 10847.259.2878 Published February 2005
  • One bankruptcy “estate” I worked on was a specialized consumer products manufacturer which failedabout five years after being acquired in a highly leveraged transaction. A review of the originaltransaction documents quickly revealed seriously questionable revenue as well as cost savingsassumptions, partly attributable to a purely financial/accounting oriented analysis. Revenue growthassumptions were very high and based on a much broader product category than the smaller, morelimited market in which the company operated. The likelihood of achievement originally was poor, asevents eventually proved. The projected costs savings included double counting – specific itemswhich were also components of allocated cost pools assumed to be eliminated – and a failure toexclude allocated indirect costs from activities expected to be eliminated. Interest requirements onthe transaction debt incurred by the company were never covered by operating income, eventuallyleading to the company’s demise five years later.By comparison, a $1.1 billion leveraged acquisition of an integrated paperboard manufacturer andconverter presciently foreshadowed one of the regular pricing “up ticks” in a very large market,correctly assessed the impact of very large capital outlays nearing completion for one of thecompany’s primary virgin containerboard mills, and accurately gauged administrative consolidationopportunities resulting in a dramatic growth in earning in two years which enabled re-financing thedeal debt at more favorable rates, further improving earnings. A few misunderstandings of theacquired organization structure caused minor problems in the payroll system and receivables systemconversions, but did not seriously impair the progress of the consolidations. The success of thistransaction rested on combining financial and accounting skills with a solid knowledge of businessoperating processes and drivers, elements the financial reporting is intended to describe, and adisciplined, planned, and thorough review of both business processes and reported financial details.About the Author:These observations are based on my career in business and volunteer work for non-profitorganizations built on a core expertise in finance and data management, organizational management,and working with people. They are drawn from a collection of concepts which have worked in avariety of situations in different businesses and organizations, and have included the basis for turn-around and strong improvements. Business needs combine both unique requirements andfundamental concepts discussed in my guidelines which can be used in simplified forms or as anelaborate and sophisticated part of complex organizations with complicated information systems. Myobservations reflect knowledge and skills acquired through a life of work experience and learningpatterned on the model immediately below: Skill level DescriptionStrategic Business strategy, data warehouse and mining systems, capital structure planning and transaction execution, Activity Based Management, IFRS/IAS expertiseAdvanced GAAP expertise, international financial reporting/accounting standards (IFRS/IAS) familiarity, special analyses for acquisition or divestiture, process change and improvement, Activity Based Costing, enterprise management systems design and installation, capital structure optionsIntermediate Budgeting/planning, strong understanding of GAAP, application systems design and installation, controls documentation, enterprise management systems operationBasic Transaction processing, controls compliance, basic financial reporting, general understanding of GAAP, applications systems operation___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 11847.259.2878 Published February 2005
  • Appendix: Other Topics Saved for the Sequel:Getting RhythmTime is MoneyCommunicate by (Format) DesignThe Cutting Edge Causes PainIs Fair Value Fair?Balanced ScorekeepingIs Precision Accurate?The Gap(s) in GAAPSurviving Your Audit – Do You Have GAAS Pains?___________________________________________________________________________Finance and Data for Dummies Smart People, by Barrett Peterson, C.P.A. 12847.259.2878 Published February 2005