As management accountants, we tend to focus on the numbers, providing management reports and helping CEOs understand how these reports translate to profits... and, sure... whether you’re an IT company, developer, marketing firm, manufacturer, or other service business, you’re absolutely in it for the profits. But management reporting and job costing should also deliver another essential component of your business strategy: human capital management and company culture.
Stephen King, GrowthForce President and CEO, recently sat down with Art Saxby, the CEO of marketing firm Chief Outsiders to talk about why businesses, “need both, a financial management strategy and a human capital strategy in order to run better, grow faster, and make more money.”
During their discussion they repeatedly emphasize the fact that human capital and financial strategies are not separate entities; they go hand-in-hand.
“What I've seen in a lot of cases with some of our clients,” King said, “is the actual key performance indicators and scorecards destroy their culture because they use them the wrong way.”
This destructive use of management reports occur when business leaders focus too strongly on what's been done wrong, where money's being lost, or who's responsible for shortfalls — rather than highlighting what's going right in business, what's driving profits, and who's responsible for generating those profits.
Focusing on the positive aspects of management reports, KPI scorecards, and setting organization-wide goals helps CEOs establish positive culture and also a benchmark for lower-performing employees to strive for.
As Saxby put it, “Culture needs to be based on strategy.” In his organization, Saxby uses his company’s financial system to reinforce its core values. Shared the right way within a company, financial reports foster a positive culture that reinforces employees’ higher purpose within an organization, using recognition, motivation, and proper incentive (based on scorecards).
If you don’t establish a financial strategy that reinforces company values, you could face a day when your company’s "culture can eat its strategy for breakfast.”
How Job Costing and Management Reporting Drive Growth and Improve Morale
1. Management Reporting for Positive Cultural Impact
A shrewd CEO uses management reporting as positive reinforcement. Use monthly numbers to satisfy your employees' hierarchy of needs, which according to Maslow include the need to belong (be a part of a team), feel accomplished (receive recognition), and to achieve self-actualization (having the ability to meet one's full potential).
Rates of change represented in management reports, such as the trailing 12-month and trailing 3-month charts, can be used to motivate employees. Using management reports to motivate and satisfy employee needs, CEOs should recognize and reward employee achievements, set clear goals for the organization and its people, and point out the actions that will drive the business toward meeting and surpassing those goals.
Saxby said the best way to encourage his employees has been showing them why profit is up and growth is positive. He then gives them the numbers so they can self-regulate. "When they can self-regulate [and] when they can self-analyze, that's just better for me," Saxby said, "because I'm not going to sit down and go through it with people on what [they are] not doing well, why isn't it working."
2. Job Costing to Measure the Value of Customers
Job costing should be employed to measure the lifetime value of customers to determine how much you can afford to spend in Customer Acquisition Costs. Considering customer lifetime value, you can also better determine which employees to dedicate to which customers and what factors (customer loyalty, employee experience, revenue, and costs) you will use to make those decisions.
Saxby reminds us that when selecting team members for certain projects or clients, "It Isn't as simple as, pick a number and bottom line it." CEOs should consider more than how much an employee's time is worth and how much profit a particular client generates. He said, "[D]eciding who to put on a project needs to be based on who is the absolute best resource for that project."
3. Job Costing to Measure the Value of Your Time
The jobs CEOs often grossly underestimate the cost of, are their own. Whether you spend time managing individual departments, invoicing clients and writing checks, or making strategic decisions that will generate growth, as CEO you have a responsibility to ensure the job you’re doing is worth your time’s actual value.
According to Saxby, you don’t want to waste time and money doing a $100 job, when your time is actually worth $200, $300, or $2,500. You can use job costing to estimate the worth of certain tasks and decide whether it makes monetary sense for you to continue spending your own time on those jobs. If not, delegate to an employee whose time costs your business less than your own.
Saxby said that every year he asked himself, "What am I doing that is $100 an hour? That's $200 an hour? What do I need to stop doing? It can go to someone else in my organization [or] I can outsource it to someone else, so that I have time to do the higher value things."
What's the Best Way for CEO's to Save Time and Money on Bookkeeping?
As Saxby recalled his own experience in his growing business, he recounted his struggle with balancing the reflexive need to control every minute detail of his company with what his time was actually worth. With an MBA in Business Finance, he found it especially difficult to relinquish control of his company's books and management accounting. "This is my dollars," he said. "I need to control this, I need to understand this. I need someone I can trust."
First, his company struggled using their CPA/tax accountant to manage bookkeeping tasks, especially during tax season. With a single point-person at the CPA firm, they were often left scrambling to send invoices promptly and remit payments on-time, not to mention staying on top of management reports. "They're really good people and everything, but that wasn't their business. It wasn't the thing they did," said Saxby. "At [that] point, the question was, do we hire our own?"
His company then tossed around the idea of hiring a bookkeeper in-house, although they could only afford one and didn't need a full-time bookkeeper. Plus, hiring only one would leave them vulnerable to internal fraud. Saxby said the problem with hiring in-house was that when one person's in charge of, "money coming in, money coming out, reconciling the bank account, [and] telling me what we made or not, it's just open for fraud."
Eventually, Saxby and Chief Outsiders came to the conclusion that outsourcing with GrowthForce would be the best strategy for saving valuable time on bookkeeping without exposing the company to fraud or missing out on valuable financial data.
"What we recognized, moving to GrowthForce," Saxby said, "we've got [a] team of three people. We've got one person who spends a lot of time on it, and their stuff is checked . . . and there's not one person who's bringing in the money and paying out the money. I still am the only one who pays it out."
Outsourcing: How Relinquishing Control Could Disappoint Your Dog While Liberating You
Outsourcing your management accounting and bookkeeping to a reputable client accounting service provider will free you from the constraints of checking the mail, driving to the bank, writing checks, sending invoices, and painstakingly pouring over payroll each month. No longer will you have to pay yourself $100, $200, $300, $2,500 to do menial tasks like licking envelopes. Plus, outsourcing these functions guarantees you'll always have accurate financial reports and KPIs to help you identify your business's profit drivers, growth drivers, and make data-based decisions.
When King asked Saxby how giving up control of his company's bookkeeping and accounting functions affected him, he said, "Quite honestly, it was liberating." Thanks to GrowthForce's unique client on-boarding process, Saxby said, "When we turned on the switch, it actually went perfectly . . . The only one really disappointed was my dog."
"It used to be every day, I'd go, get the mail!" Saxby recalled. "Get the mail! The mail's come! I just saw the mailman come up! And the dog would go, yeah, and we'd run out to the mailbox. Oh, look I got a check! Oh, we got a check! But now the checks are mailed to [GrowthForce]. My dog's like, 'Wasn't that the mailman? Don't we get to run outside and get excited?'"
But Saxby said he, at least, still gets excited every time he approves bill payments. He receives an email, logs in, and said, "Surprisingly, it's one of the best parts of my day . . . It's like I just paid out $150,000 to my friends."
Referring to GrowthForce's ability to scale services as a company grows, without skyrocketing costs every step of the way, Saxby said, "We never could have got to where we are today, scaling the way we are, unless I hired a whole team. I never could have afforded a whole team. That team wouldn't have had a career path because you're the bookkeeper at a small marketing firm, where do you get to promoted to?"