A company is revising sales forecasts for 2016 and seeks the advice of others. A combination of low energy prices and shaky financial markets sparked by the Chinese decline has left many questioning whether they should revise their plans to account for an economic contraction. How is the economy impacting your sales plan?
Advice from the CEOs:
Niche Software Company – we are coming off of a good year. Our industry has seen low impact so far. Going forward we are cautiously optimistic. A couple of clients have delayed projects but didn’t cancel.
Services Company – hiring has been frozen. Adjustments to staff count have already been made. Clients are asking us to contact them again early in the second quarter. Opportunities exist in the health care area.
Hardware Company – we are running scared. We have cut business and personnel expenses to assure survival. A large customer just announced new plant construction earlier this week – this may help to turn things around. We are assuming this will be mean a longer term rather than a short-term opportunity.
Niche Software Company – cutting personal/business expenses. Long term things look favorable, but we have to survive the short term. Attendance at a large trade show this month was a little above last year but we don’t know whether this will yield a significant increase in sales.
Trades – Projects with big bank backing are on hold. We see large scale bidding wars for projects. Where there used to be 3-5 bids there are now 15 or more. Looking for consolidation of competition – especially union–based shops.
Situation: A company has been using the accrual method of accounting. As they approach the fourth quarter of the year, they are looking at project-based accounting to reduce year-end cash reserves and taxable income. How do you create and manage a project-based accounting system?
Advice from the CEOs:
The PeopleSoft Division of Oracle offers a project-based accounting package. There are a several issues that accompany a shift to project-based accounting: do employees work on more than one project, how do you plan to account for shared services such as administration and Human Resources, and do you plan to share revenue and costs across projects? These can entail a fundamental change in how the company is organized and behaves. If your primary motive is tax avoidance rather than organizational change, why would you pursue this level of change in the organization?
Looking at hundreds of companies with which the CEOs in the group have worked, nobody has seen any that utilize project-based accounting.
The company’s objective is to better understand the various projects that the company manages, and to have revenue travel with cost. A far simpler option from an accounting standpoint is to look for ways to pre-pay future expenses and thus reduce year-end cash reserves.
Another option is a hybrid between cash and accrual accounting.
If you have a strategic reason to pursue project-based accounting, look at firms that serve the construction and entertainment industries. These industries have similar challenges to those faced by the company.
Situation: A company, noting that business conditions have improved, is planning for growth. This means keeping current customers and taking on the next tier of customers. They are also focused on improving customer service and the customer service experience. All of this costs money. How do you control expenses as you grow?
Advice from Andy Wallace:
As a small business, you can’t spend more than you have. You need to focus on all expenses from supplies to workers compensation. Major expenses are inventory and payroll. You need to focus on the line items, control the little things and control the big things.
There are three areas that we monitor frequently: inventory control systems, overtime, and assuring that safety is first to reduce accidents and control workers compensation costs.
Employees respect employers who respect them and their families. Recently we had an employee who was called by school because their child was sick. We told the employee to take the rest of the day off to take care of the child. The employee was back in an hour, having made other arrangements for the child’s care.
As you grow your payroll, hire the right folks with the right skills. Take time and don’t rush – you need to fill the position with the right person. As a small company having the right skills is important and reduces the costs for training and on-boarding new employees.
Important skills for us vary by position but include solid computer and technology skills; attention to detail, as well as writing, communication and math skills; the ability to multitask and respond positively to interruptions.
The culture of our company is extremely important. It’s the foundation of the company and we want to perpetuate it. Culture starts at the top with the leadership as examples for the employees to follow. It can’t be “do as I say, not what I do.” Employees know who arrives early and stays late, who is attentive to details. If we don’t set the right tone as leaders of the company, we can’t expect them to follow.