IDU | Budgeting Forecasting and Reporting Solutions: June 2014

Monday, 30 June 2014

If Poker is just a game of chance then so is business

If you don’t know what you’re doing in poker, you can lose with the best hand at the table. Conversely, if you’re skilled and a little lucky, you can win with the worst hand.  Not always, but often enough to tip the odds in your favour in the long run.

It’s exactly the same in business. We don’t get to choose the hands we’re dealt -- but we do get to choose how we play them. To succeed, you must know the rules, learn to calculate odds, take calculated risks and know your opponents.

Be tight-aggressive
Being over-cautious can be as dangerous as being over-aggressive. If you play every hand, but are too timid to call a raise, you’re likely to lose. Don’t bet on every hand, but when you do, bet aggressively. If you believe in your cards, take control of the hand and go on the attack. 

That strategy works in business too; there’s a place for aggression in every tactical toolbox. If you can recognise when to back down and when to push back you have a huge advantage.

Know when to hold ‘em and when to fold ‘em
Knowing when to fold is a critical survival skill. To make the decision, you need information.

How much do you stand to lose if you fold? How many cards in the deck will help you? How much more do you need to invest to stay in? How much do you stand to win if you get the right card? You need to be able to calculate the odds objectively.

A business deal is no different – at every stage you need to dispassionately evaluate how much you have invested, what might work in your favour and what it will cost -- financially, in time, in energy -- to keep going. When does the cost outweigh the reward?

Know your opponent
Evaluate your opponent. What is their playing style, how do they react to certain situations, what are their tells? Good poker players watch their opponents at least as carefully as their cards. A realistic assessment of relative strengths and weaknesses allows you to match yourself to the competition in poker and in business.

You can’t bluff in business

The one fundamental difference is that you can win in poker on a bluff and never have to show your cards – In business you always have to deliver. Business success is decided on delivery. In fact, if you deliver on your word, you might get to choose the game next time around – and it doesn't always have to be poker.

**As published in Accountancy South Africa

Tuesday, 17 June 2014

Business Analytics: Not all tools are created equal

Although there are many Business Intelligence and Business Analytics tools out there, they are definitely not all created equal. In order for your Business Analytics tool to help you maximise the value from your financial information, you need to ensure that the product is well established and can deliver innovative reporting to both management and the business as a whole.

A high quality Analytics tool will deliver true slice and dice capabilities around the financial information held within your existing database, allowing you to answer any deeper question you might have.

In order for it to deliver true value, it needs to be extremely user friendly and offer both a real time view and rapid analysis of your data.

It should provide dash-boarding capabilities at the click of a button, and require no IT involvement to configure and deliver quality reporting; saving your team valuable time.

It should come standard with a preconfigured set of models integrated with your database and deliver immediate added value to users; and be easily customised to meet specific needs of individual clients.

In today’s mobile work environment, it should also allow for the availability of data off-line and have a facility to replicate the database to your local pc or laptop and allow for the continuation of the analysis off-line.

An added bonus would be the inclusion of a limited top down budget approach, ideal for the quick re-forecast type environment, where there is a requirement to amend some figures at a high level and then ripple the effect of these changes down to the lowest account cost centre combination by month.

The Analytics should link across your existing software modules, exposing all tables to the application and enabling complex analysis across Sales, Asset and Financial tables where these are in use.

The Analytics tool you choose should be extremely flexible and allow you to easily analyse different components of your business. Ideally, the business providing your financial software should be able to offer you a high-quality tool or module that easily integrates with your systems and helps you to gain insights from your financial information to inform your business decisions.

Monday, 2 June 2014

Accounting for Bribery - Corruption or Practicality?

A local news story on a forensic audit which uncovered a petty cash slip made out for R 5,000 and described as “bribe money” for a municipality caused much outrage about the corrupt attitudes this exposed. But is the tracking of this amount corrupt or just a practical way of managing a very real issue? 

What is Bribery?
In its simplest form, bribery is giving someone in a position of power something in order to change or influence their behaviour to benefit you or your business or cause. Bribes can be anything from cash to gifts to favours to extravagant entertainment; but not all of these are necessarily bribes. What is considered a bribe differs from country to country and from culture to culture.

Where is the line?
Giving someone a gift to show appreciation or respect may be construed as a bribe in one country where it is common practice and even a tax deductible expense in another. In some cultures a cash bribe or “tip” to thank someone for helping you is tradition, gifts to show respect or pleasure at working together is the norm, flying potential clients into your country and putting them up in respectable hotels including meals and entertainment for the duration of their stay is simply practical if they are in the country purely to see your operations.

Entertaining clients or potential clients in an exclusive box at the rugby – entertainment or bribe? If a business manager hears how a competitor has been wining and dining a potential client and decides to up the stakes by getting the potential client tickets to a Celine Dion concert because the wife of said client is a huge fan; is that a bribe or simply entertainment and friendly competition?

This goes even further when considering hiring staff in other countries. It is common and smart business practice to hire local people to manage your business operations if you start a new branch in a foreign country. You hire them for their specialised knowledge and understanding of their country and their laws and regulations; isn't part of what you chose them for knowing how their local culture works with regards to doing business efficiently? Ethical standards are culture specific and a person acting on your behalf in a foreign country may not even realise that what they are doing is considered illegal elsewhere.

A little bit of history & reality
Until the mid 1990s bribery, particularly in the case of foreign officials, was not only acceptable business practice, but a tax deductable business expense. It was only in 1997 that 34 countries signed an anti-bribery agreement with the Organization for Economic Cooperation and Development (OECD). Although this convention came into force in 1999 and now includes 40 signatories (34 OECD and 6 non-OECD countries), there are a large number of countries; including those that have signed; that still do not consider bribery in foreign countries illegal.

There are very few countries in the world where it is possible to do business without making some form of government payment and any business that wants to compete in these markets is aware of this. There will always be somebody willing to remove or shift regulatory obstacles for a price.

Why bribery?
Laws alone cannot eliminate bribery since the root of the activity is tied into the conditions and cultures of each individual country. Where officials are paid poorly, where a few individuals have the power to choose suppliers without having to justify their choices, there will always be bribery.

Apart from the possibility that managers may not be aware that what they are doing in incentivising certain bodies to gain favour is illegal and bribery, there are also those who are faced with everyday business pressures to perform and deliver and don’t see any other way to do so.

The new branch manager, who has been given the responsibility and accountability for launching into a new market with tough targets and the need to succeed, is faced with a choice of giving someone what they ask for in order to reach the goals set or failure.

This is not to say the business owner is in favour of bribery or encouraging it in any way, but you push your people to deliver and ideally you want them to make the right decisions while getting the job done, but how many people might see it as a lack of choice? Especially when they are responsible for the jobs and livelihoods of others and you have sent them to a country where bribery is nothing more than a basic cost of business and competition.

The line between what is right and what is necessary may very soon become blurred.

Accounting for Bribery
Although the legalities have changed, the realities have not. If bribery is a reality in your business because of where you operate, surely as a business owner this is information you need to know?

From an accounting point of view, if amounts that are some form of bribe are hidden in a multitude of other expenses; and usually in a variety of different expenses depending on the branch or manager; as a business owner you have a largely skewed overview of where your money is being spent.

For example, if your new office has “donated” a large sum of money to the local government party as this is the standard in this country when joining their economy, but the manager knows that there is nowhere that this expense actually fits; would you rather the manager adds it to “International Travel” expense? And elsewhere, you have another branch that has given the expected gift to the head of the new company you have won over as a client, should this be added to the “Entertainment” expense?

What happens when you are reviewing expenses at the end of the year and you see the cost of expenses has doubled in one branch, but you have not secured new clients that equate to that expenditure; or that suddenly your entertainment budget is off the charts in a branch in a small town in Witwatersrand?

What happens when you are budgeting for your next year; and not knowing what those expenses are actually covering you cut those budgets, possibly losing major business without realising it, putting your entire business at risk?

There is a reason we as accountants value transparency so highly – it is necessary in order to make informed business decisions on all levels.

The Dilemma
How do you plan or manage your business when you have no idea where your money is being spent. Denying bribery exists by building it into other costs means not knowing the actual costs of your company doing business. Would you as a business owner rather have a clear line-item for bribery or “New business expansion” which would allow you to make informed decisions moving forward, or should your managers continue to hide these amounts elsewhere?

I can already hear the furore of voices at the implication that one would condone illegal activity such as bribery of officials by adding a line-item to your books to account for it, but there is a big difference between condoning the behaviour and accepting the reality of its existence.