Access Company Credit Risk Using Internet Resources

Granting a company the right to pay for a service or product at some time after you have delivered the service or product involves a risk that the company will not pay what is due.  Resources on the Internet might help you in assessing the credit worthiness of that company and help you decide on whether selling to that company is a good idea. 

This blog identifies some of these resources.  Some of the resources do not require a fee but others do.  All involve in some way a database with historic information related to the company.  Such historic information is useful for assessing the credit worthiness of the potential customer.  

The expense of using these resources, in terms of your time plus any fees, probably can be kept to less than two to three hundred dollars per customer, perhaps much less. This seems like a small price to pay to weed out potential non-paying companies when the cost of the service or product to you is high enough.

What follows is a suggested sequence of using the Internet to obtain information on a company and its credit worthiness.

Maryland, and probably most other states, offers access to Maryland-registered company information from its websites.   At this Maryland site (click here), information can easily be found on such things as when the company was formed, the value of personal property (based on personal property tax returns), and whether the company is in good standing for paying it personal property tax.  Also from this site, a search of UCC filings will show those filed against assets owned by the company.  These filings might be useful in evaluating the debt status of a company and perhaps how others view the credit risk of the company.

Also in Maryland, and probably other states, you can search  for the real (land and structures) property a company owns and the value of that property as assessed for real property tax purposes (click here to go to the site where a search can be made).

The American Bankruptcy Institute has a site (click here) apparently still being developed (i.e., in beta status) that will search several databases simultaneously for bankruptcy and other legal news related to the company of interest.  Knowing that a company has gone through bankruptcy, and/or other legal proceedings, can be useful in evaluating the credit worthiness of the company.

The United States Government maintains the PACER (Public Access to Court Electronic Records) system (click here to go to this system’s website).  At the site, you can search US court cases that a company has been involved in.  Fees do apply.  Court cases can provide insights into a company’s financial and other transactions.

Experian (click here), Equifax (click here), and TransUnion (click here) offer reports on small businesses that assess the credit worthiness of the businesses.  Fees for basic reports range from $35 to $100, and more.

D&B (Dun & Bradstreet) offers reports starting at $62  that provide information on a company’s payment history.  Click here for details.

LexisNexis, which maintains or has access to large numbers of databases, offers a small business credit risk service based on LexisNexis use of those data bases (click here to go to the service).  LexisNexis also offers a service that will search not only state records of UCC filings but also state records showing state tax liens against companies, another indicator of a company’s ability or willingness to pay on time (click here to go to the service) .

Spending some time, and in some cases fees, using such Internet resources as identified above could fine risks associated with the credit worthiness of a company, and help you decide on whether you want the company to be a customer.

Using Force Field Analysis for Change

Recently I was in Mali working with a women’s rice growing cooperative to help them improve their accounting.  During this period, I had a chance to assess and become familiar with their situation and their desire to be more profitable.  Their lack of profitability is a concern for them.  They want more profits, more wealth generation.

A conclusion that I came to is that the cooperative needs to be run more like a business, needs to incorporate sound business management practices, in order to become profitable.  Because it seems to me a change is needed, I decided to learn more about force field analysis by writing this blog and apply the concept of force filed analysis to the suggested change for the cooperative.

At the risk of over-simplifying, force field analysis evaluates the forces that promote a change and the forces that oppose the change.  The analysis tries to identify all those relevant forces that promote and those that oppose the change

Here is a list of factors that I came up with that promote the cooperative in Mali to being more like a business:

1.  Lack of profit as a cooperative – 3;

2.  Recognition that as a business, profits are more likely – 4;

3.  A better work environment, and other benefits, for cooperative members when the cooperative is run more like a business. – 3.

For these three factors that promote the change, I have assigned a weight to the importance of the factor in promoting (leading to) a change.   The weight is on a 1 to 5 scale, with 5 being of the highest importance.   The total weight of factors supporting a change is 10 (3 + 4 + 3).

Here is a list of factors that oppose the cooperative being more like a business:

1.  Lack of business skills and practice know-how – 4;

2.  Traditional practices and habits of behaving as individuals in decision making and action in rice growing versus company decision making and behavior – 5;

3.  Lack of concepts on assigned roles and company organizational structure – 3.

The total weight of factors opposing a change is 12 (4 + 5 + 3).

Now for some analysis on the above lists and what they might mean and what they suggest.

First, the above lists are based strictly on my experiences while in Mali teaching the cooperative accounting and evaluating their situation.  The correctness of the above lists is therefore constrained by whatever skills and experiences I have in the evaluation.

I believe the first obvious conclusion to reach from the above lists is the cooperative is not going to change to being more business-like on the basis of the current forces for and against that are in place.  The against forces are stronger then the for forces.  So, actions and interventions need to occur if a change is to take place.  The above lists can help guide on what these actions and interventions might be.   An approach is to create a greater weight for each of the for factors and a lesser weight for each of the against factors.

The factor with the greatest weight (5) and therefore draws the most attention is the against factor - traditional practices and habits of behaving as individuals in decision-making and action in rice growing versus company decision making and behavior.   How do we reduce this weight?  Like many of the other factors, both for and against, training is an important action to take.  But, now we recognize one type of training should relate to the advantages of group decision-making; collaboration; team building; advantages of group versus individual performance, and similar concepts.  Such concepts relate to changing traditional practices and habits of behaving as individuals.

Training is also important to reduce the other against forces.  Through creating the lists, we now know better what the training should focus on.  

For the factors that promote change to being more like a business, training on what profits are, how to measure them, for example, by using correct accounting and creating income statements, should be emphasized.  An accounting system should be implemented with the goal of showing annual profits.  Using an accounting system should help the cooperative to be more business-like.

Company organizational structure can bring benefit to the participants in a company versus when the members go alone, which a problem with the current cooperative situation.   Such benefits include: specialization of duties, which promote greater success for the organization versus when individuals act alone and better collaboration and coordination on the use of the available resources, easing the burden that can exist when individuals go alone.    Specialized training should be planned and presented demonstrating these concepts and the results of these benefits to members.

Force field analysis strikes me as a relatively simple but powerful tool to help in implementing a needed change.  Hopefully, the above has demonstrated this. 

More can be found about the concept and use of force field analysis at the MindTools website. Click here to go to this website.

Use a Twitter Tweet Dashboard to Help Manage Your Business

An enormous amount of information flows down the Twitter electronic pike as tweets.   This continuous flow from thousands of tweeters – individual, company, and other organizational types – represents a unique source of information.  It seems to me that there has never been anything like what this flow of tweets represents with respect to information availability.

It is technically relatively easy to select a specific topic, for example, employee performance, and then to pull (filter) from the Twitter flow many tweets with relevant information on the topic “employee performance”.   If one is seeking what others know about employee performance, using Twitter as one source of information would be easy and likely productive.

Although, as stated above, gaining access to tweets on specific topics is relatively easy, what should one do who is interested in a broader subject, such as human resource management, under which employee performance is but one subtopic?  In other words, how does one filter Twitter for all tweets with information on the various subtopics that make up a broad subject area such as human resource management? 

An answer that I have come up with uses the idea of a dashboard consisting of several filters, each filter on a specific subtopic within the broad subject area.  Once set up, the dashboard can easily be brought up as a webpage and then each filter on a specific subtopic will be available to drill down for details in the tweets on that subtopic.  The collective tweet fitters will cover many, if not most, of the subtopics that make up the broad subject area of interest.

This idea of a dashboard of Twitter tweets seems to me to offer the possibility of being a good tool in managing various broad subject areas in a company.   Besides human resource management, other areas might include: financial management; benchmarking; sector analysis; environmental issues; governmental issues; and country and regional informational needs.

A dash board concept is used extensively in financial management of a company where the various components of a financial dashboard represent various financial and accounting data relevant to the company.  Collectively, the various filtered data (on the dash board) gives an overview of the financial condition of the company. 

Hopefully, the collective filters of tweets on subtopics of a broad area, such as human resource management, will also give useful information in managing the general area in a way not possible otherwise. 

Click here to go a version of this blog which shows the “Human Resource Management Twitter Tweet Dashboard”.  Shown at the bottom of the page are 7 subtopic Twitter filters making up the dashboard.  These filters were set up using Twitter creation tools on one of their web pages.   The subtopic filtered is shown at the top in the presentation box.   The presentation box presents tweets in real time as they are submitted in Twitter, and will cover tweets in the recent past (e.g. several days).   Clicking the link “Join the discussion” in the presentation box will bring up a complete list of the tweets related to the subtopic that have appeared in the recent past.

Twilert, a Twitter App, Should be Useful to Support Decision Making

Twilert is a free web app that enables you to receive selected Twitter tweets by email.  The tweets sent to you will have the keywords in them that you select. Twilert, which is easy to set up and to use, can provide you selected information that flows through the Twitter system.  This information could be useful to you in decision-making.

For example, many federal, state, and local government agencies now “tweet” (send out electronic messages) using Twitter.  These tweets contain information about the agencies’ services and actions that the agencies feel may be of value to the public, the users of its services and recipients of its actions.    These tweets can contain such information as pending regulatory and compliance requirements, information that is valuable for businesses to know about as soon as possible.  Twitter is a very efficient and effective method for agencies to electronically distribute important information.  And, for companies, who can benefit from knowing this information as soon as possible, using a service like Twilert could be very useful in being alerted to these tweets.

Monitoring Twitter for government regulations is just one example of what information, which flows down the Twitter electronic pipe, can be monitored by a company.   Other examples include:  software used by the company; products produced; services offered; markets targeted; retail products being considered for sale; and likely many others.

Perfecting and using skills to extract useful information from million of tweets that flow down the Twitter message pike will likely prove to provide many advantages to a company.  One easy to set up and use tool to begin monitoring Twitter tweets is Twilert.  Click here to go to the Twilert website.  Check it out.

Using a Decision Tree Analysis for Insights on Marketing Expenditures

In my last blog below, I wrote on the use of What-If Analysis to reach conclusions about pricing by a small professional services company.

Data generated by the Excel What-If Analysis Tool for the below article can be nicely used to gain insights on marketing expenditures, when used with decision tree analysis. 

For example, assume that the company in year 1 has a $90 per hour fee it charges, a demand of 800 hours, a fixed cost of $10,000 (rent, utilities, office expenses, etc, but not including the salary), a variable cost equal to 30% of revenues (which corresponds to US Census survey data that shows that professional service companies have an average 70% gross profit margin percentage), and breakeven profit (profit = $0).   At these amounts, the company is able to pay a $40,000 salary (as shown by What-If Analysis).

Now, the company wants to increase the $40,000 salary that it can pay in year 2 by increasing the demand above 800 hours, while keeping the $90 per hour fee the same.  So the company decides to increase marketing expenditures to try to increase demand.  How much should the company increase the marketing expenditures?

The use of the  analytical tool, decision tree analysis, can help answer this question.  A major difficulty in answering the question is predicting the increased demand with certainty.  To counter this uncertainty, the decision tree analysis approach is to assign probabilities to possible demand increases resulting from marketing.  

Here is an explanation.  Assume that one outcome of the marketing program is that it is not very successful.  In using decision tree analysis for this outcome, I have defined the outcome - not very successful - as: 80% probability that there is no demand increase; 20% probability that there is sufficient demand increase to increase the revenue (and therefore salary) from $40,000 to $50,000, and there is no probability to increase the revenue (salary) by $60,000 or $70,000.  With these probabilities, the expected revenue increase in year 2 can be computed to be $2,000 [from $40,000 (year 1) to $42,000 in year 2].    This is computed by using this formula: 0.8 x $40,000 + 0.2 x $50,000.   In other words, there is an 80% probability that the revenue (salary) will remain at $40,000 and a 20% probability that the revenue (salary) will go to $50,000, so that the most likely result is $42,000 (assuming 80% and 20% are correct). 

Now we can compute the likely revenue increases in three other possible demand increase outcomes: moderate success in more demand; good success in more demand; and very successful increase in more demand.   The computations for each of these three possible outcomes, done as above for the not very successful outcome, give these increases from $40,000 in year 1 to: $46,250 (moderate success); $48,250 (good success), and $55,000 (very successful), in year 2.   These increase values depend on the probabilities that I have assigned to the possible outcomes. 

These three possible demand outcomes are given percentage probabilities for each of the four revenue (salary) outcomes: $40,000; 50,000; $60,000; and $70,000.  These percentages are:

1. Moderate success:  $40,000 – 50%; $50,000 – 40%; $60,000 – 7.5%; $70,000 – 2.5%.

2. Good success:   $40,000 – 30%; $50,000 – 60%; $60,000 – 7.5%; $70,000 – 2.5%.

3. Very successful:  $40,000 – 10%; $50,000 – 40%; $60,000 – 40%; $70,000 – 10%.  These percentages need to be selected by the company.

The decision tree analysis is greatly assisted by first doing the What-If Analysis, which will give the demand hours needed for various increases in revenues (salaries).  Knowing these hours help in deciding on the probability that marketing expenditures can reach these number of hours.   The demand levels for these revenues (salaries) are:  $40,000 – 800 hours; $50,000 – 952 hours; $60,000 – 1,111 hours; and $70,000 – 1,270 hours.

The results now give us some insight into how much the company should increase the marketing expenditure.  Probably less than $15,000 should be spent, since it is unlikely that a revenue increase will be greater than $15,000 (that is the amount of revenue increase predicted in a very successful marketing campaign).   A conservative decision for marketing expenditures would be less than $2,000, since this is the amount of revenue increase predicted for a not very successful marketing campaign.  For year 2, the best expenditure is probably between these two amounts.  Year 2’s results should help in better selecting the outcome probabilities in subsequent years, if the marketing campaign continues.

The Mind Tools website (click here) provides an explanation, with an example, of decision tree analysis.

Pricing Decisions for Professional Service Providers Using Excel’s What-If Analysis Tool

(Salary amounts modified on August 1, 2012 due to error discovered in initial computations.)

A problem for small professional services companies in starting up their businesses can be what price (fee) to charge for the services provided.   The demand for the services and what other similar (same experienced, skills, etc) providers charge are often uncertain.  Using Excel’s What-If Analysis Tool can provide a baseline fee level for various demand hours (total billable hours) at an assumed variable cost and fixed cost (including an expected salary) and at a breakeven point ($0 profit).

A lowest baseline fee level needed to reach a certain salary at an assumed demand, variable and fixed costs, and profit = $0 (breakeven point) should be useful for professional service providers to know.  Knowing a lowest baseline fee level removes some uncertainty about the lower limit of a fee to charge.  With this knowledge, the service provider should be more confident that any fee below a fee determined by using the What-If Analysis Tool will not provide an expected (needed) salary.  This does not mean that this lowest baseline fee is the fee that should be used.  What is met is that the fee is the lowest fee that should be considered.  Considering higher fees depends on many uncertain factors, not the least of which is demand at various fee levels, which a tool like What-If Analysis will not be able to provide much help with.

Using Excel’s What-If Analysis, I was able to show, at 1,200 hours of demand (total billable hours), a fixed cost of $10,000 (rent, utilities, office expenses, etc.), a variable cost equal to 30% of revenues (which corresponds to US Census survey data that shows that professional service companies have an average 70% gross profit margin percentage), and at a breakeven point (profit = $0), the following:

1.  With an additional fixed cost of $30,000 (salary), the fee needs to be from $45 to $50 per hour; at an additional fixed cost of $40,000 (salary), the fee needs to be from $55 to $60 per hour; at a additional fixed cost of $50,000 (salary), the fee needs to be $70 to $75; and at an additional fixed cost of $60,000 (salary), the fee needs to be from $80 to $85 per hour, in order to reach the stated salary. 

2.  But, decreasing the demand to 800 hours, the corresponding required fees for the above stated additional fixed costs (salaries) need to be:  $70 to $75; $85 to $90; $105 to $110: and $125.

So, if a professional service provider expects a $50,000 salary and will have a demand equal to 1,200 hours, and has $10,000 of other fixed costs (in addition to the salary expectation), and assumes a 70% gross profit margin percentage, a fee of $70 to $75 per hour will obtain the expected $50,000 salary.  Also, it is possible that a professional service provider will be very intolerant of continuing in business at a salary level lower than $30,000 to $40,000.  If yes, a minimum fee for such a service provider would be $45 to $60 per hour, given the above stated conditions.  (In other words, a $45 to $50 per hour fee provides a $30,000 salary, at the conditions stated.)  This fee range would go down at higher demand levels, and up at lower demand levels, again, given the conditions stated above. 

In addition to suggesting a lowest baseline fee to use, the What-If Analysis Tool can generate demand (number of total billable hours) levels that will provide a certain salary, at a fee amount.  One possible use of such data might be adjusting a fee on a year to year basis.  For example, if after year 1, a certain salary is achieved at one fee and demand, What-If Analysis results will show how much a drop-off in demand can be tolerated in the next year when the fee is raised (assuming a raise will lead to a lower demand) yet obtain the same salary as  in the previous year.  

For those interested in using Excel’s What-If Analysis Tool (available within standard versions of Excel), many websites can be found that provide information on using the tool.  One such website (click here) provides instruction, by Wayne Winston, on setting up and using What-If Analysis, with an application description similar to the application discussed above.

The analysis that I did with Excel’s What-If Analysis Tool, a summary of which is provided above, I believe shows that the tool can be very useful in decision making.   Some thought has to go into the details of what is desired.  Then the tool needs to be tested based on the analysis of these details to determine if useful data is generated that helps in decisions that needs to be made.

Concentrate on Coaching and Organizational Goals in Employee Feedback

What companies should communicate to employees about employee performance is a major area of management research and analysis.  Searching the Internet and academic article databases on such terms as employee, performance, evaluation, strategy, and alignment will find hundreds of examples of this research, analysis, and discussions about employee performance feedback.  Much of what is found in recent information recommends changes in the traditional supervisor to employee evaluation, assessment, and rating schemes in practice for dozens of years.

One article found at the Bersin & Associates website provides what seems to me as an excellent overview of the changes being recommended in employee performance feedback.  Click here to read this article.  This article does not eliminate the traditional supervisor to employee performance assessments, but indicates that this traditional practice is only one of the goals of employee feedback, and is a less important contributor to the company’s success than other goals for employee feedback.  These other goals deal not with past performance of the employee, as traditional assessments do, but with aligning the employee’s future performance in ways that support company strategic goals.

Therefore, the major objective of supervisor to employee feedback and supervisor and employee goals for this feedback is not past performance but future directions.  The supervisor now has the role of serving as a coach moving the employee in the direction of acquiring the skills, understanding, motivation, and activities aligned with the company’s strategic goals.

Consider as an example to demonstrate this forward-looking, coaching-management perspective of supervisor-employee feedback, a small company and its accounting function.  Assume the company has three strategic goals:  increased revenues; increased profits; and better customer and vendor relations.  The accounting department would then develop a set of goals for its function that support the company’s strategic goals.  These accounting goals might be: customer and vendor evaluations and analysis; cost analysis; and sales analysis.  Now supervisor to accounting personnel feedback sessions will have a new objective – the needed individual actions, competencies, and analysis to meet the three accounting department goals (which are tied to the company’s goals).

The traditional supervisor-employee work assessments still are needed, but with a lot less importance.  Its importance is now primarily only to screen out those employees who need to be terminated.  All other employees are accepted as worthy in the ways that they are worthy.  These employees are given encouragement and coaching to increase their worthiness, and are asked to set personal goals related to the accounting department’s goals.

Return on Equity – an Excellent Metric for Decision Making

The return on equity is an excellent measurement for small businesses to use to monitor how their businesses are going.  The return on equity is determined by dividing the net income for the year by the average equity (beginning equity plus ending equity divided by 2) for the year.  This Wikipedia site (click here) provides more on the definition.

Searching the Internet can find commentary on the value of the return on equity measurement.  For example, an article by Timothy Vick associates success of many companies with a high return on equity percentage.   Click here to read this article (PDF file).  Another article, by Richard Teitelbaum, Kimberly McDonald, and Ed Brown, does the same.  Click here to read this article.

Researchers have shown a relationship between a company culture, as defined by the researchers, and higher returns on equity.  Lorraine Eastman, Christopher Kline, and Robert Vandenberg show that companies with certain cultural characteristics have higher returns on equity.  Click here to read this article (PDF file).    Richards Barrett demonstrates the same conclusion.  Click here to read his information (PDF file).

The return on equity measurement is easy to make.  Net income is quickly obtained from the profit & loss statement and average equity can be computed from the equity balances at the beginning and ending of the year, obtained from the balance sheet for those dates.

Another useful return on equity attribute is that three other measurements, net income as a percentage of sales, sales as a percentage of total assets, and total assets as a percentage of average equity, can be targeted for improvements.  As each of these ratios are improved (increased percentages), the return on equity will increase.  This is because (net income/sales) X (sales/total assets) X (total assets/average shareholder equity) equals net income/average shareholder equity (which is return on equity), when the numerators and denominators in the equation cancel one another out.  So, a company can target anyone, or all three, of these percentages for improvements, and by doing so, will increase the return on equity.  Such actions as reducing costs while maintaining the same sales amount or selling assets but maintaining the same sales amount will increase the return on equity.

Companies should stride to increase their returns on equity. This site (click here), maintained by Aswath Damodaran, at New York University, provides average returns on equity for about 98 business sectors.

Save on Airline Tickets with Advanced Purchases

Significant savings can be obtained by booking airline tickets in advanced.  A 2012-published survey by Egencia found that advanced purchases of airline tickets to several destinations could result in savings from 11% to 47%.  Purchases were at least 22 days in advance compared to near term travel purchases.  Click here to read the data in this survey (PDF file).

In Priceline (click here), I found that I could save from 31% to 87% if I purchased round-trip tickets from Baltimore to 4 destinations (Boston, Chicago, Denver, and Miami) four months in advance rather than a few days in advance.

However, special factors, such as advanced bookings to a destination when a seasonal or

well-publicized event is happening during the desired travel dates, might reverse this finding to where a purchase price is higher than lower for an advanced booking.

I also found that there was no material difference in purchase price whether through Priceline or directly from the airlines at their websites.   But, using Priceline is very convenient because several airline prices are shown in one search, from which the best price can be chosen.  Otherwise, each airline has to be searched separately.

No airline consistently had the lower price.   Airlines recognized as being low price carriers did not have more “lowest” prices than other airlines.  There was great variability between the airlines in who offered the lowest price.   Also, there was often a wide range between the lowest price and the highest price.

According to the Aberdeen Group report entitled “Travel & Entertainment Expense Management – Reducing Processing Costs & Improve Policy Compliance”, travel and entertainment expenses, on average, account for between 8% and 10% of total operating expenses.  The report provides several recommendations for a more efficient and effective management of a company’s travel needs.  As this report and the above data on advanced bookings suggest, policies and procedures related to a company travel needs can lead to significant cost reductions.  (Click here to read the Aberdeen report.) (PDF file.)

Determine Marketing Effects on Retail Sales Using a Control Chart

Small retailers should consider the use of a control chart to help determine whether a marketing campaign, such as offering discounts or gift cards, has any effects on sales.  Control charts can be used to show where a statistically significant variation from a normal pattern of events exists.  Daily sales totals are an example of a normal pattern of events.  If the daily sales totals increase by a statistical significant amount above the normal variation in sales from day to day, at the same time that a marketing initiative is implemented, the increase is likely due to the marketing initiative.  If no significant variation is seen, then the marketing initiative likely has had no effect on increasing total sales.

Control charts creation and use do involve some complexity, and therefore time is required in learning about and dealing with the complexity.  Certain aspects of the use of control charts and how best and how not to apply them can be beyond the abilities within a small retailer’s shop.  However, I believe other uses of control charts, for example, in charting daily sales against statistical significant limits variability for sales, could be within the resources that a small retailer might want to expend.  One reason for this is that accounting software, such as QuickBooks, can easily export daily sales data to Excel.  Once in Excel, a control chart, based on that daily sales data, should be relatively easy to create, after the initial understanding of how to do so is learned.

I did some Internet research to find a few websites that provide introductions to a basic use of control charts, using Excel to create control charts, and how control charts can be used with daily sales data to show effects, or lack of effects, of an external factor, such as a marketing camping, on the sales data.

This link (click here) takes you to a CPA Journal article that provides a basic definition of a control chart and what can be shown on a control chart.  Data points falling outside of the upper and lower control limits show that likely something is affecting the data other than normal variation. 

This link (click here) takes you to a ProfTDubYouTube video that demonstrates how to create a control chart in Excel.

This bizmanualz site (click here) uses a series of weekly sales data to demonstrate the various computations that are used in creating the average line, the upper and lower control limits, and the moving range average.  Graphs are used to show how these computed values are used on a control chart to reach conclusions about the graphed data.

Two websites show well how a control chart can demonstrate that graphed data is being affected by external factors.  Click here to go to a BPI Consulting site.  Go to the bottom to see how a control chart shows that on-time airline arrivals and departures have improved as of a certain date due to changes made by the airlines. That several consecutive data points fall on the same side of the average line indicates a non-normal variation.  The biamanualz site above provides more on this consecutive rule.  

The second website (click here) has an article written by Australians Phil Cohen and Onno van Ewyk that provides a clear explanation of how data points on a control chart might show unusual affects on the data.

My blog article here focuses on one use of a basic control chart – to show how daily (periodic) sales might be affected by an external event such as a marketing campaign.  Many more uses of control charts exist.  Their uses to show information about processes is only limited by the number of processes that exist and the need to gain some insights about those processes.

This article also deals with a very basic statistical used of a control chart, such that smaller retailers might be able to use a control chart with available resources.   Much more sophisticated uses of control charts, requiring much more sophisticated computations and statistics, have been developed, which also greatly extend the uses of control charts.

A lot can be found on the Internet about these additional uses of control charts.

Use Government Websites to Help Manage Record Keeping

Federal and state governments have record keeping requirements that small and large businesses are expected to meet.   If record keeping requirements exist, a government website almost certainly will identify, explain, and provide other details about the requirements. 

A good strategy for a company is to establish the correct record keeping policy, which it seems to me means spending enough resources on keeping the records to meet the company and government needs without spending more than the necessary resources.  In establishing this policy, the company should use the Internet to go to the government websites dealing with record keeping requirements in order to clarify with certainly what is needed and what is not needed.    Knowing the requirements at these websites will help to insure that sufficient, but not excessive, resources for record keeping are used.

Many functions in a business operation may, or do, require record keeping.  Some functions such as sales and employing workers have record keeping requirements for all businesses.  Other functions such as transportation, export-import, and safety-related activities have record requirements for those companies involved with the functions.   Regardless of the business operations that exist, government websites will provide the information needed to help optimally manage the record keeping requirements.

Provided below are some links to government websites that demonstrate what is available at government websites.

Sales, revenues, and income.   The Internal Revenue Service has established record keeping requirements related to these business functions.  And, the IRS has websites that explain these requirements. Click here and here to go to two such websites.

Employee records.  The US Department of Labor oversees federal record keeping requirements for hiring, paying, terminating, and other activities related to a company’s employing workers. Click here to go a DOL site from which employee record keeping requirements can found.

In addition to federal record keeping requirements related to income and employees, and other business functions, states may also have additional requirements.  State government websites will have these requirements.  As part of the company strategy to develop an efficient and effective record keeping policy, these state websites should also be researched.

Gift Card Concerns for Small Businesses

Gift cards have become very popular with customers and a successful retailer’s marketing tool.   Point of sales accounting systems, such as the QuickBooks Point of Sales software, make offering gift cards easy for small retailers.  (Gift certificates are included in the use of the term gift cards.)

After the gift card sale, small companies (as well as large companies) need to be concerned with correct accounting and that federal and state regulations are complied with.  Both of these concerns, accounting and compliance, can be easier dealt with successfully by using information found by searching the Internet.

Below are identified some websites that are good sources of information for addressing concerns that small company retailers might have with gift cards.

In 2009, the US Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act).  A section of this act deals with gift cards.  A Federal Reserve Board (FRB) site provides an overview of how this act applies to gift cards.  Click here go to this FRB site.  Gift card rules in this act do affect how retailers account for gift cards.  For example, a gift card must be good for at least five years from the date of purchase.

In addition to this federal act, states may have rules that are applicable to gift cards.   Rules are usually associated with the states’ unclaimed property procedures.  Gift cards that are not used (redeemed) can represent unclaimed property to the issuing retailer.  Mary Bernard has written a short overview of aspects of unclaimed property laws affecting gift cards.  Click here to read this overview.  Small companies should read their state’s web pages dealing with unclaimed property procedures and how gift cards might be affected.  Searching on the terms unclaimed property and adding your state’s name should bring up a link to your state’s webpage dealing with unclaimed property, from which information on gift cards (certificates) might be found.

Three review articles dealing with gift card issues, including compliance with unclaimed property rules, are excellent sources of information.  The accounting firm Grant Thornton has an article on opportunities and issues for retailers in their use of gift cards.  One section deals with accounting for gift cards.  Click here to read this article (PDF file).  Another article, written by John A. Biek at CCH, delves into tax issues and unclaimed property aspects of gift cards.  Click here to read this article ((PDF file).  The third article, by Michelle Andre at KPMG, focuses on the issues of gift cards with respect to unclaimed property compliance.  Click here to read this article (PDF file).

Data Mining in a Small Company

Company data are some of the company’s most valuable assets.  Such data as customer and vendor lists and financial transactions are collected routinely and are critical to a company’s operations.  The data is used to show how the company is performing financially and in other important ways.  Company changes are based on decisions driven by what the data shows.

A key to company success is making changes based on what the data shows.  A primary responsibility of the company accountant is to analyze financial data for conclusions about needed changes.  Others in the company depend on company data to complete their tasks and to make decisions.

For these and other reasons, the company’s data is one of its most valuable assets.  The company would be wise to improve the use of this asset by thinking about new ways of using the data it collects and of looking for what may be in the data that provide important decision-making insights, but which has gone and can easily go unnoticed.

Data mining is a method of looking for what may be in the company data that provide important decision-making insights but which has gone and can easily go unnoticed.  Two websites provide good overviews of data mining.   At a Federal Reserve Bank of Boston site, Miriam Wasserman has an article giving examples of data mining use.  The Center for Data Insight at Northern Arizona University has an article entitled “A Perspective on Data Mining” that delves deeper into what data mining is and its use.  Both of these articles are dated but still provide some basics of data mining that continue to be true.  Click here and here (PDF file) to go to these articles.

Although data mining can involve a lot of resources in large companies, Microsoft has developed add-in technology for use with Excel that should make data mining more simple and double for a smaller company.  You can read more about the Microsoft’s data mining product by clicking here.  From this site, you can watch videos on the use of Excel and the data mining add-in.  Whitepapers are also available from this site on Excel and data mining.  YouTube has several videos on using Excel for data mining.  Search on “Excel data mining” at YouTube.

Even with the data mining add-in and it use with Excel, technical challenges requiring sufficient background and perhaps a steep learning curve can still exist.  In such a case, the small company might consider seeking an independent contractor to assist developing Excel for mining of the company’s data and to show unexpected and useful patterns for decision-making.

Risk Management (Online Purchasing as an Example)

A company should be concern with the risks that threatens the company.   Some of these risks occur when a company uses the Internet for purchases.   Although often these risks are small for most purchases, important risks can exist.

The practice of risk management is evolving into a more recognized, systematic (methodical) task within a company.  In a smaller company, the accountant might be the best (only) person to take on this task.  This is a task where a proactive, innovative accountant might add additional value and be recognized for it.

A good approach, it seems to me, to the task of risk management, such that the management is successful, is to recognize where risks exist, to understand the nature of these risks, and then to implement the policies and actions based on this understanding, which minimize the risks.  This approach can benefit from an expert, thorough research of the Internet to find appropriate information to better understand the risks.  This research often leads to recommendations on policies and actions to minimize the risks.

 Provided below are 3 websites that provide excellent information on the risks associated with online purchasing and steps to take to minimize the risks.

A site maintained by the non-profit Privacy Rights Clearinghouse has a list of precautions when purchasing online.  Click here to go to this site and these precautions.

The Bureau of Consumer Protection at the US Federal Trade Commission has a website with information to protect purchasers.  Click here to go to this website and then click “Computers & the Internet” for protections related to online shopping.

The Department of Homeland Security has a site that provides guidance and risks about Internet purchasing from other countries.  Click here to go to this site.

Understanding the information at these three websites is a good approach to implementing policies and actions in your company that will reduce risks related to online purchases.  Identifying these websites demonstrates the value of competent Internet researching in risk management.

Human Resource Management Information Sources

The small company accountant often ends up keeping the “official personnel folders” for the company employees.  And, along with this, comes many tasks that would be done by a human resource department, if one existed in the company.  But, since the company has no human resource department, the accountant is given the role.

Many of the tasks needed, such as payroll, records management, and regulatory compliance, can be well-handled by a skilled and willing accountant.   The accountant can be greatly assisted in this role by a willingness to seek out and use the many websites that have excellent information on the human resource functions and managing the functions.

The following identify some of these excellent sites and provides links to them.

A Wolters Kluwer site provides well-organized and easy to read information covering many functions that are needed in managing personnel.  Click here to go to this site.

The US Department of Labor (DOL) provides extensive information of probable use in personnel management issues and decisions.  Employment law and regulations can be found by clicking here.  DOL provides hundreds of job descriptions and 2010 median pay based on federal government surveys.  Click here to access this information.

Two sites useful for employee benefit-related information are the Employee Benefit Research Institute (EBRI) site and the BenefitsLink.com site.  At the BenefitsLink site, click on “Authorities” in order to find several links to government and other sites providing guidance on employee benefits.  Click here and here to go to the EBRI and BenefitsLink sites, respectively.

These are just a few of the many websites where you can find in-depth information on human resource/personnel management.

Although many human resource tasks can be carried out by the accountant, the accountant and other company leaders need to recognize those situations where the company should seek the advice of more skillful and knowledgeable persons, such as an employment attorney.

Information on Federal and State Tax Credits

If your company has certain expenses, you can qualify for tax credits from your sate and from the federal government.  These tax credits reduce the tax amounts that you would otherwise pay to your state and the federal government.

You may already be incurring the expenses.  If yes, you certainly should be applying for credits to reduce your tax payments.  Another consideration is to implement a company project (make expenditures) because the project satisfies a company need and also because a tax credit exists which helps to make the economics of the decision more attractive.

Below are six expenditure categories that could qualify for federal and state tax credits. For each category, links are provided to websites that companies can go to for more information on available tax credits from states and the federal government.

1.  New employees.  The federal government offers tax credits when companies hire employees that qualify for the credits.  Click here to learn about the federal government’s Work Opportunity Tax Credit.

Most states offer tax credits for hiring employees under certain conditions.  Click here for a US Library of Congress site that provides links to all states’ home websites.  From these home websites, information on the tax credits offered by the states, not only for hiring new employees but for other tax credits offered, can searched for and found.

2.  Health insurance.   The National Conference of State Legislatures provides an overview and links to information that describe federal and state programs that provide tax credits to employers that provide health insurance to their employees.   Click here to go to this site.

3.  Investments.  Some states offer tax credits to investors who make qualifying investments in companies located in their states.   The Community Development Venture Capital Alliance has published a report that surveys state tax credit incentives for investments.  Click here to assess this report (PDF file).  The state’s websites should also be used to verify whether the state has tax credits for investments in companies.

4.  Energy.   Click here to go to a US Small Business Administration site with information on federal tax credits for energy efficiency.

At this Energy.gov site (click here), tax credits and rebates offered by states, cities, and counties can be found.

5.  Environmental improvements.  The US Environmental Protection Agency has a site which leads to descriptions of each state’s recycling tax incentives.  Click here to go to this site.

6.  New product and process development.   An article published in The CPA Journal identifies the states that offer tax incentives designed to stimulate the research and development of new products and processes.  Also provided is a brief analysis of each state’s incentives.  Click here to read this article.

The federal government also offers a research and development tax credit (for product and process development).  A GrantThornton site provides an overview of the tax credits and the activities that qualify.  Click here to read this overview (PDF file).

Survey Results on Fulfilling Customer Sales Orders

No more important company goal should exist than to satisfy the customer with the product and/or service offered by the company. Many company processes are used between receiving a customer sales order and delivering the order’s requested product and/or service to the customer.   Below are links to four surveys that identify several such needed processes.  The surveys present data that are measurements that can be used to show how well the processes are carried out.

In addition to the links to the PDF reports on the surveys, information is provided below on some of the key content provided in the survey reports.  The data in the reports should be useful to the small company trying to improve its sales order fulfillment processes.

The Aberdeen Group published a report entitled “The Warehouse Productivity Benchmark Report – A Guide to Improved Warehouse and Distribution Center Performance” in 2006.  The report indicates that most companies surveyed have not been successful in reducing customer order cycle times. Suggestions are made on why this is the case.   The suggestions lead to recommendations.  Useful data in the report includes: actions taken or planned to improve warehouse operations; identification of technologies being used or planned for improved performance; barriers to better warehouse performance; and best-in-class performances compared to average performances.  Click here to access this report (PDF file).

Karl Manrodt and Kate Vitasek, of Metrics Surveys, analyze a 2006 survey by Georgia Southern University on how well distribution centers do in delivering products to customers.  What may be the most useful data for the small company, presented by Manrodt and Vitasek, are median and best-in-class performance measurements for metrics related to distribution.  Metrics include: order cycle time; on-time shipments; dock-to-stock cycle time; % lost sales; % back orders; cases shipped per person per hour; distribution costs as a % of sales; inventory shrinkage as a % of total inventory; and inventory days of supply on hand.  Click here to gain access to these useful benchmarking metrics (PDF file).

Karl Manrodt and Kate Vitasek use the results of another survey, conducted by Vendor Compliance Federation, to prepare a 2008 report focusing on how average and best-in-class do with respect to the four metrics often considered the most important in fulfilling sales orders successfully.  These four metrics are: on time delivery; complete orders; damage free; and accurate documentation.   The report’s data include that in 2007 on average only 51.1% of surveyed companies had on time delivery; 59.5% complete delivery; 100% damage free; and 88.8% accurate documentation.  Best-in-class vendors had these results: on time delivery – 76.7%; complete – 87.5%; damage free – 100%; and accurate documentation – 99.4%.  Click here to gain access to this report (PDF file).

Rob Martinez reported the results of a 2010 Shipware Systems Corporation survey on distribution center metrics.  The survey compares what data best-in-class companies track to what average campiness track.   Results show that increased tracking of distribution-related metrics often correlates with companies found as best-in-class.  The survey also shows that companies that benchmark to other company performances do better in several distribution-related metrics.  The report on the survey can be accessed by clicking here (PDF file).

The data from surveyed companies in the four reports identified and linked to above should be useful to small companies to set goals for one of the most important tasks a company has – keeping the customer happy.

Mobile Banking Offers an Important Tool to the Business Owner

With the smartphone, the small business owner can now have easy and mobile access, at all times, to the company’s and owner’s personal bank accounts.  This mobile access then becomes an important tool that the owner (company decision-maker) has in order to make and implement, more efficiently and effectively, company financial decisions.

Using the smartphone, some of the financial tasks the owner now can timely do are: transfer funds between accounts, to manage cash flows; approve and initiate payroll; approve payments needed to be made to company personnel; snap pictures of checks received to make bank deposits, without visiting the bank; approve vendor bills that need to be paid; and act on account alerts received from the bank.

Now with a smartphone (mobile device), the owner does not need to be at his desk and desk top computer to have access to one of the most important company information sources – the data in the bank account.  And, because of this, performing financial tasks, such as the ones identified above, at optimal times, will add value to the company.  The better the company’s money supply is managed, the better off the company will be.

And, the utility of the mobile device to manage cash through the bank account is likely only to get better as banks develop additional applications.   These applications likely will allow for better cash flow and cash management analysis leading to better financial decisions.

Here are links to two websites with useful information about mobile banking and security.  The first link is to a Federal Reserve Bank of Boston primer on what mobile financial services are.  This document seems to be an excellent overview of mobile banking as of 2010.  Click here to access this overview (PDF file).  The second link is a McAfee report on security concerns with mobile devices.  Click here to access this report (PDF file) and to read about security concerns with mobile devices.

Using mobile devices in a company’s banking processes requires efforts at understanding mobile banking options offered and how to use the options.   The better these options are understood and used, the more valuable the mobile device and its management of the bank account will be for the company.

Also, the use of mobile device banking has consequences for the company’s accounting processes.   Accountants need to be on top of what mobile device banking options are, how the company can best use them to be more successful at cash management and at accounting, and how to integrate the mobile banking options with the accounting system so that correct accounting continues. 

An Accountant Needs Project Management Skills

Projects are a likely way of doing business in an accounting department.  So it seems to me that accountants should have good project management skills.  Such skills have been identified, developed, and documented by educators and practitioners.  Taking advantage of this and learning the skills should be a goal for accountants.

Several websites are good resources for leaning about project management practices.   Max Wideman maintains a website which serves as a good introduction to project management.  Click here and then click Issacons.   Free Management Library also provides good information on project management.  Click here.  The British site ProjectSmart is a resource that tries to help managers at all levels improve their project management performance. Click here. 

PMPODCAST has available several podcasts on project management, including one on project management for non-project managers (episode 211).  Click here to go to PMPODCAST.

A top goal of a project is for the project to bring value to the company.  Part of an accounting manager’s responsibility is deciding to proceed with a project only when the potential resulting value justifies proceeding.   The accountant should be able to comfortably discuss the project’s value with others in the company.   Determining a project’s value is part of being a good project manager.

Becoming a good project manager takes time, education, and experience.   Accountants should take the time, learn good project manager skills, and apply them.  If they do, they will be better able to help the company’s leaders transform the company.

As the Accountant, Become a Business Leader

Out of stock inventory items should be avoided at all costs.  Customer satisfaction should be the top business priority of the company.   A customer who arrives for a purchase only to find the item out of stock will not be satisfied.  On the other hand, having too much quantity of an item in inventory is expensive, in many ways, to the company.  Being "out of" versus being "over stocked" represents a challenging conflict that, if resolved, will bring much value to the company.

This conflict represents a real opportunity for the small company’s accountant to gain recognition and acceptance from the company’s leaders and to become one of them.   The company’s accountant is well positioned and should be capable of taking on the challenge of developing the needed measurements and processes to avoid stock outs and keeping quantities on hand at an optimal number.

The key to success in this area, I believe, is good estimates of future sales.  Many accounting systems, such as QuickBooks, provide current sales rates, which is a good starting place for estimating future sales rates.  Then, with future sales rates, one who relishes in the details, in measuring and tracking data, and in reporting, such as a good accountant, should be able to shine by proactively consulting with the other company leaders so that all those processes that affect on hand inventory counts are understood and are managed for optimal inventory levels.  The active accountant can take ownership of this area and by doing so should enhance his/her position as one of the transformative leaders in the company.

The Internet can be a source of ideas and sound practices on maintaining optimal levels of inventory.  Four Internet designations with such ideas and practices are discussed below.

Guy Yehiav and Sammy Kolt at this blog “Pump Up the Profit” present ideas about minimizing inventory distortion (avoiding stock outs and over stocking).  Click here and here to go to these blogs on this subject.   Joe Schreibfeder publishes articles about inventory management on his website.  His articles examine how much safety stock is enough and how to factor past lost sales into future sales estimates.  Click here to gain access to these articles.

Cyber Insurance Needs

As a small company accountant, you likely have been given some responsibility for the company’s insurance coverage.  If yes, think about whether the cyber (Internet and computer-related) insurance coverage the company has is adequate.

Many small companies now depend extensively on their computers and Internet connections for on-going business operations.  Even small companies can maintain large amounts of electronic data on customers, vendors, and employees.  Small companies often use the Internet extensively for sales, marketing, transferring data between the company and other businesses, such as banks and vendors, and other uses.  Interruptions of these processes can cause the company great loss.

The federal government’s Internet Crime Complaint Center reported that in 2010 about 122,000 complaints that the Center had received were referred to law enforcement officials.  Complaints included the following company-related events:  non-delivery of merchandise; online auction fraud; credit card fraud; and advance fee fraud.

In 2011, according to the Identity Theft Resource Center, 340 organizations publicly disclosed that customer data on their computer systems had been breached.  In each case, the customers had to be notified of this breach, which is very expensive.

As the company’s accountant, you would be wise to think about what cyber insurance coverage is adequate for your company.

Information at an Insurance Information Institute web page (click here) provides good advice and recommendations about insurance coverage for companies with heavy Internet usage.

Adding to the complexity of evaluating adequate cyber-related insurance coverage is the practice of keeping customer and other data at 3^rd party providers (cloud computing).  Discussions at GIGAOM (click here) and Business Insurance (click here) deal with cyber insurance coverage and cloud computing.  Insurance policies that deal with the risk of keeping data at 3^rd party cloud providers are evolving.

Recognizing the threat is important.  Although such recognition can insure adequate insurance coverage, much more important is that such recognition should lead to adequate physical and procedural protections at the company to minimize the risks.