Tag: High Finance

Dead End

Today is fire, tomorrow is ashes. This adage-like statement owes its roots to the Inuit, but has been lifted and flipped around by a heavy metal band called As We Fight. It is the title of a song in their album, The Darkness of the Apocalyse Has Fallen Before Us. (And so on and so forth.) I have not been able to differentiate the song from the apocalypse, the noise of the first being the finest expression of the second. But that’s another post for someone else to write on a terribly dark and stormy night.

One of our young and very promising accountants, James T., was transferred to a recently purchased, wholly owned subsidiary to become its Director of Finance. He is a math wizard who is able to make the numbers say whatever we want them to say. Which is one of the reasons he now finds himself in a mess not of his own making.

The subsidiary is not doing well. It is trailing its targets by a fair bit. The President of that company has been there for years and knows full well what it is capable of achieving between now and year end in the hyper-competitive market in which it is competing. All indications are that the company will lose share and probably money this year. But those are not the indications it is giving the Small Office. The numbers finding their way to General Ledger, our CFO with the Frisbee ears, show an upward swing in the second half of the year. The turn-around will be sparked by some aggressive pricing tactics the company has already initiated on a few core products. Apparently, at least one major customer conversion is in the mix.

Never a believer in the “big December”, I headed down to talk to their senior managers and commercial folks to get their view of things. While there, I dropped in on James.

His door was slightly ajar. I should have knocked. Well, I did knock, but I should have waited for some acknowledgment. When I entered his office, I found James hunched over his computer with tears streaming down his cheeks. I was certainly not ready for that. I gently closed the door and sat down, waiting for him to regain his composure.

James was being gored by the horns of a real dilemma.

James turned around slowly. His chest heaved as he sucked in oxygen. “What the heck is going on?” I asked softly. He shrugged. Then, after a pause, he unwound a very tangled tale of financial woe. Apparently, our fears were justified. There was no way the planned initiatives were going to change the results in any appreciable way. There was certainly no way they were going to meet their forecasts. Everyone in the company knew this, but the President was insistent that they move ahead with their plans and that James sticks with his numbers.

Now James had a fiduciary responsibility as chief accountant to go behind the President’s back and make all this clear to General Ledger. But that would mean betraying his boss to whom he was loyal. If they didn’t make the numbers and all this came out – that he was hiding the truth – both the President and James would be instantly fired with cause. James was being gored by the horns of a real dilemma. Or, to borrow from our adage, James was under fire and would soon see his career turn to ashes. He could see the end but could not find a way to avoid it.

Whether or not a turn-around is really in the offing, whether or not the year can be saved, it is absolutely imperative for James to come clean. General Ledger would then be in full possession of the current facts and correctly advise the analysts of what to expect; he cannot afford to lose their trust.

I told James that I do understand his situation and I sympathize with him. But he shouldn’t have to fall on his boss’s sword. If he can’t get himself to go over his boss’s head, then confront him and refuse to fudge the numbers any longer – even temporarily. Or, as the politician said, “There comes a time to put principle aside and do what’s right.”

So now, let us zip to the end of the story. James did listen to me. He drew a line in the sand. His boss informed the Man from Glad that, despite their best intentions and best laid plans, it was unlikely they would meet the numbers they had only recently provided head office.

Our no-nonsense CEO reacted swiftly. Both the President and James were summarily dismissed. An interim General Manager, one from General Ledger’s White Shirt Brigade, was appointed.

All of this proves that it is easier to die for a cause than to live for it.

To the curious reader: The actual Inuit adage referred to above goes: Yesterday is ashes; tomorrow wood. Only today does the fire burn brightly. The message is about hope, redemption, resurrection, that the burnt forest will soon regenerate and become green again. So, perhaps, there will be a new, brighter beginning for James ahead. Then again, perhaps not.

Crunching the Numbers

“Anyone who isn’t confused really doesn’t understand the situation.” – Edward R. Murrow

We were reviewing our mid-year financials, running through the Profit & Loss statement, capital investments, cash flows and so on. This is, for General Ledger – our CFO with the deep-dish ears, fearless leader of the White Shirt Brigade, and resident curmudgeon – the Sermon on the Mount. It is, for me, an interminable drag.

Not that I am disinterested in the numbers but, if it’s true the devil is in the details, this place is most certainly Hell. For a full morning, we pored over the numbers, line by excruciating line. GL’s voice was an incessant drone that has approximately the kind of neurocognitive effects that you would get from transcranial direct current stimulation over the dorsolateral prefrontal cortex. Except, instead of stimulating the brain, it dulls it to oblivion.

One of those lines, I admit, did pique my interest. In looking at our operating profit, we went into the details of our SG&A (sales, general, admin) and distribution expenses. Spending here was up year-over-year and explanation was required. Apparently revenues had increased thanks to a very buoyant market and several very successful product launches. By extension, however, shipping costs also increased, as did sales commissions. For some, it seems, this is a problem, the issue being that cost budgets were broken.

Meeting budget is serious business in the Small Office… as it should be. But the end result is that the better our top line is, the more it seems we have to defend it. Like the song says: good is the new bad. Of course, I do get the point, but the attitude gives me pause.

It is simply not important how many angels can dance on the head of a pin.

To be fair, there are other accounting constructs that I do not get either. I could never really understand why accounts payable are credits and accounts receivable are debits. If we owe money, apparently, that’s good; if we are owed, that’s bad. Tell that to your spouse.

I believe all this confusion is due to the invention of double entry bookkeeping which eventually begat the balance sheet and likely the inevitable illicit practice of keeping a second set of books.

Balancing is a good thing. Minutiae, trifles, niceties, and all the tiny particulars of life that require sincere answers to stupid questions… less so. It is simply not important how many angels can dance on the head of a pin. It is important only that they can.

All of this whining is, no doubt, an unintended result of all that transcranial stimulation that deep-dish accounting has on me and I apologize for it.

(As an aside to the engaged reader, accountants furiously debate whether double entry bookkeeping was invented by Luca Pacioli, a Franciscan monk who, back in 1494 in Renaissance Milan, while instructing Leonardo da Vinci on the finer points of mathematics, wrote the Summa de Arithmetica, Geometria, Proportioni et Proportionalita, or by Benedikt Kotrulejevic (more familiarly Benedetto Cotrugli) who, in 1458 in the bustling Croatian burb of Ragusa, wrote the breezy and beguiling Della mercatura et del mercante perfetto. I believe it is a product of Twilight Sparkle, she of the Ministry of Arcane Sciences. You decide.)