It's Time for Your Fiscal Exam - "How's My Company Doing, Doc?"
Submitted November, 2000
For decades men of vision have regarded businesses as living organisms with the ability to react to stimuli and respond to the pressures of the marketplace. In the modern swell of progress, businesses at the cutting edge of competition are pumping iron, revisiting their diets and using consultants and experts like aerobic conditioners in programs to maximize strength and powers of endurance, to ensure excellence on the playing fields of Wall Street or Ventura Boulevard. The best companies are those in the condition of excellence, are those, like championship athletes, who are in excellent condition.
If a man wants to improve his health and conditioning, he goes to his physician for a physical examination. He allows himself to be poked and prodded, stuck with needles and strapped to machines so that he can discover the answer to a single question: how am I doing? This is what he asks his family doctor. How am I doing? Certainly, it's the man's own body he's asking about, but the physician/consultant is trained to tell him all the things he doesn't know about his interior and its health, about the prescription for diet and exercise that will make him more fit and productive.
The rules of health apply to the body business as well. When was the last time your company had a fiscal examination? What kind of shape is your business in? How is it doing? Where do you find a "fisician" to answer these questions? Look no farther than your full-service certified public accounting firm. Full-service CPA's have years of experience dealing with business conditions and assessing the relative health of the companies with which they deal. They know how to recognize the telltale signs of change, both in their clients' operations and in the marketplace, and are able to make observations and recommendations regarding those changes.
Take the case of XYZ, Inc., the well-known manufacturer of printed circuit boards. For years all XYZ had to do to secure a government purchase order for military-use circuit boards was to make a bid. The price was what XYZ said it was. No questions were asked. No answers were offered. And all were happy in this paradise in which cost and price were no object, in which scrap was just trash. There was heavy demand, barely enough suppliers to meet that demand and huge backlogs of orders. And then the President and Congress decided that maybe we had enough new weapons systems, that maybe we didn't require a military as large as it was and that maybe we could cut back in what we spent for military hardware. Things changed. Demand decreased while the number of suppliers remained the same. What do you think happened?
What happened was that companies saw their orders from the government begin to shrivel. They began to compete for orders that their competitors had been filling at whatever price they could charge. Government procurement agents saw this and pitted suppliers against one another in bidding wars. Competition for available jobs drove prices down. Costs remained constant or increased. Those companies which lacked full job costing systems or had failed to monitor quality sufficiently well to reduce scrap rates on complex multi-layered circuit boards found themselves in unfamiliar territory, losing orders, losing money and losing out. Many circuit board manufacturers died, including XYZ. If obituaries were written, they were written in the business sections of newspapers. The only funerals which were attended at all were presided over by bankruptcy courts and credit committees.
Could this have been avoided? In many cases it was. During these times, a CPA we'll call Bob consulted with one circuit board manufacturer whose main customers were prime defense contractors. Bob served as their "fisician." He and his client determined that for this particular company to compete they needed to take aggressive action in a number of areas. First, in order to price effectively, they had to institute a system which accurately described the costs incurred in the manufacture of each of the boards the company produced. They then needed to institute a system of production controls which tracked orders throughout the production process to determine the most cost efficient use of machinery and manpower. They also needed to review quality control procedures and testing at all stages of production to reduce scrap and, with it, the cost of producing their circuit boards. Then they held meetings with the company as a whole and with individual departments to get everyone involved in the "new" operations, to obtain employee input, which was incorporated when applicable into the streamlining of operations, and to get people excited about what they were doing. They let them know how important they as employees were to the company and how their efforts would lead to increased efficiency and profitability. And they established a profit sharing plan in which all participated, so that employee efforts also proved monetarily rewarding.
This company survived and grew while competitors died. There was no magic involved, just an accurate reading of the external and internal conditions affecting one circuit board manufacturer, an accurate diagnosis of the problems facing the company, and the production and implementation of a prescription for change.
What Bob did was perform a fiscal examination of his client. What his investigation of factors extrinsic and intrinsic to that company revealed, he shared with his client, and his client acted upon those findings. The client acknowledged the existence of a problem when he retained Bob, sort of like you and I do when we go to the family doctor and tell him we're not feeling good, and the family doctor checks us over and tells us what we need to do to feel better.
But doctors insist that we see them at times when we're not feeling ill. They want us to have a check-up once a year so that we can see if there are any conditions present of which we are each unaware but which, if undiscovered, might prove injurious or even fatal to us. We don't tell our doctors that they're being excessive, that we think they're just trying to line their own pockets at our expense. Because we know they're not. They have our health and welfare at heart; they want us to be patients for a long, long time. So are full-service certified public accounting firms. Your CPA wants you as a client to be around for a long, long time. When he recommends a complete fiscal exam for your business, it's so that he can uncover any potentially life-threatening conditions existing in your business before those conditions can do serious damage, so that he can proactively keep his clients resourceful and competitive in today's marketplace. No one wants to see a client panhandling on a Wall Street corner, muttering, "I coulda been a contender."
Call your CPA today. Don't ask him how he's doing. Ask him how you're doing. Arrange for a fiscal exam to find out. You'll be thankful you did.
Copyright © 1999 Herbert T. Schmidt, Jr., CPA.All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you believe you may lawfully use a quotation, excerpt or paraphrase of this article under the Fair Use exception to copyright law, except as otherwise authorized by the author of the article, you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.