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Scrooge Manning the Books --Dickeson

August 2002
Remember Bob Cratchitt in the Charles Dickens novel in the 1800s? Wasn't Bob the bookkeeper at a stand-up desk with quill pen and sand box making daily entries in the accounting books of Scrooge Graphics?

Well, Bob Cratchitt lives! Just like Jimmy Dean and Elvis Presley. Tiny Tim now has great grandchildren, but Bob's still there keeping the books at Scrooge Graphics. Now he has a computer to replace his quill pen, but he's still using the same system. He's still cranking out balance sheets and income statements two weeks after the close of the month.

Trying to use general ledger financial statements for management is, as one writer puts it, trying to steer the car by watching the yellow line in the rear-view mirror. GLA facts are artifacts available only weeks after the close of some period.

We've agonized for years with the clumsiness of those months based on moon phases, developed by Pope Gregory and Julius Caesar. Some of us now use three months of 4-4-5 seven-day weeks to make sense of a quarter. We're still confused by ancient asset values being depreciated into "reserves" that have no value and all of the adjustments Cratchitt and the accounting rabbis must make.

Sneaking More Sales

Frustration sets in with those first-in/still-here inventory valuation rules. And then there's the fudging—like holding the month open for a few days to sneak in some more sales or putting expenses into work-in-process inventory for momentary profit cosmetics. Oh, what tangled webs we weave when first we fumble to achieve.

It's time—it's past time—for us to move to a system of weekly cash basis accounting for commercial printing. We have to predict to manage, and the numbers must be logical and readily understandable.

Go ahead and let Bob keep doing your cost accounting and general ledger books as you always have, but put the reports in a dark closet. Get them out only for tax purposes and for bankers who need paper records to satisfy bank examiners and who believe in the living Cratchitt.

We must have decision support information by 8 a.m. every Monday morning following the close of a week, not two weeks following the close of some moon phase. Put the week's numbers in the context of a rolling quarter of 13 weeks.

Those of us involved in management of printing companies have known for years that Budgeted Hourly Rates were misleading nonsense—not usable for current predictions and decisions. No surprise at all that modern scholars and writers no longer commend cost accounting as a management decision support.

Scandals have now alerted us to reassess the adequacy of the Scrooge Graphics Accounting. The current and continuing rash of accounting shenanigans are of concern to stockholders, institutional financiers, stock brokerages and taxing authorities primarily where equity valuations are an issue.

Yes, we're outraged and sickened by the falsities and deceptions practiced. Thousands have lost their jobs and thousands more are becoming frightened as their savings vanish. But we've known since the year 1350 that the zero balance general ledger system is an equity valuation tool—a fiduciary model not intended for operating management guidance. It's a flawed valuation system and useless for operating decision support.

What we want is a weekly statistical model. Reports within a few minutes after the close of a week are what we seek. We need currency, not archeology. Data must be in a context that gives it relevance and meaning. This is why we urge using the rolling 13-week report format where the oldest week is dropped and the newest added in each weekly report. In this format we're always looking at the most current week in the context of a quarter-year.

You're right. Bob Cratchitt wouldn't have time to adjust depreciation and diddle with work-in-process and raw inventory values for closing and opening entries for reports within minutes after the close of a weekly period. There wouldn't be time to hold sales open even an hour or move some expenses into inventory. Do you care? I don't.

That's equity stuff—fiduciary misinformation. Hey, we're running a business here, man. We're talking dynamics—cash. We need to know what's happening, right now. Tell your accountant to go have a cuppa with Cratchitt while the computer program spits out the decision support reports.

Let's keep those reports clean. On the first one let's see the receipts, expenses and cash balances for the 13 weeks. Give us a simple line chart to dramatize the trend. Do the same on the second one for the accounts receivable and on the third one for raw paper inventory. By 8:05 a.m. Monday we know our liquidity position—where it's been, and where it's heading. Liquidity is our key to being in business tomorrow...to being able to take advantage of opportunities...to our ability to grab that 36 percent interest on 2/10/n30 purchase discounts...to make the down payment on a new fork lift. As managers, our task is to focus first on working capital—make the payrolls, pay the bills, buy the materials.

No Extra Details, Please

Yes, we may need some detail, so mouse over to a number, double click it, and drill down to the level where the devil lives in details. But, don't bother us with details if we don't ask for them.

You can remind us at 8:06 a.m. on Monday of our weekly Break-Even Bogey so we'll keep our eyes on expenses and collections. At 8:07 a.m., John has a minute to tell us what he's going to do, collecting receivables this week and to predict where they'll be next Monday. At 8:08, Fred has his minute to tell everyone what he'll do this week to bring inventories closer to the 12 turns goal.

What we're really saying is that it's time to get down to basics. It's 2002, and we have computers and shop floor data collection. We can do that Triple M—Monday Morning Management—routine. It can be current, simple, real and digestible if we keep it all to little, seven-day bites. Ask Sam Palmisano at IBM. Bob Cratchitt at Scrooge Graphics is fiction.

It's now 8:09 a.m., and it's Jim's turn to tell us what sales he'll close this week and what he expects the contribution to be. Yes, that's based on a rolling weekly quarter report, too.

—Roger V. Dickeson

About the Author

Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at roger@prem-associates.com, by fax at (520) 903-2295, or on the Web at http://www.prem-associates.com.
 

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