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Case Study One: A large regional real estate brokerage firm was hemorrhaging losses of $1 million a year. At the same time, revenues were increasing, market share was at record levels, and the firm had more award winning agents than any in the same large metropolitan area. However, even a talented and motivated staff could not overcome the pressing need for cash. The glittering company was on the brink of a liquidating bankruptcy. Accounting was merely an overgrown, unresponsive and antiquated bookkeeping system. Budgeting and financial controls were non-existent. The turnaround time on commission payments to agents was in weeks instead of days and the accounting staff was the constant butt of jokes and the stated cause of all the company’s ills. My background in cost accounting, budgeting, and accounting system implementation proved very useful. We immediately installed a new accounting system, created a working budget and advocated the closing of redundant offices and reducing overhead expenses. By removing restraints, we reduced the turnaround time on commission payments to our agents from weeks to less than four hours. Cost accounting and break even techniques were instituted and we reduced our debt and leasing load by 25%. With renewed financial vigour, the brokerage firm went from losing $1 million per year to profitability within 18 months.
A dispute between the two owners of a small financial institution brought the once highly profitable company to within months of financial ruin. Accounting systems were not integrated between branches, cash was not safeguarded properly and one of the owners was plundering the company to maintain a rich life style. Taxes were delinquent, credit was cut off and employee turnover was above 100% annually. As a court appointed receiver, my first duty is always to protect the assets of the company. We installed daily cash reconciliation procedures and removed the management that allowed such a lax climate. Next we negotiated longer term repayment plans with taxing authorities and creditors. The remaining staff found hope and within two months the company experienced positive cash flow. We then negotiated a sale of the business for a price at least double it’s worth only six months prior. The taxes and creditors were paid off and the owners found peace and continued on with their lives.
A major food processing operation lost its entire cost accounting department within two months. The company not only lost good people but all the expertise and systems knowledge walked out as well. Most of the costing was done on individual computers with little or no integration, sketchy documentation, and each accountant used a personal methodology to determine standard costs for over 1,200 finished items. Each finished item used in varying quantities between ten and thirty ingredients. Additionally, each ingredient had its own cost that required updating. With a legacy mainframe system, the cost department was just not set up to update its standard costs in the two months allowed before the final budget approval. Using both spreadsheets and data base programs, we were able to build the standard costs for the entire product line within three weeks. The database constructed used off-the-shelf macros and reports and could be used by anyone with a rudimentary knowledge of data input. The program has since been refined to allow for individual cost projects and bid proposals in an almost real time fashion. |
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