At TSI, we’ve seen this movie quite a few times as we consistently work with fast-growing companies.  It starts with a great launch and a strategy that, after a few bumps, seems to be falling into place.  Then, Finance and other departments run at “redline speed” in the pursuit of company growth.  And after years of hard work, you are finally poised for the big IPO or possibly a lucrative acquisition.

Click here for more info on TSI’s SOX compliance expertise.

But before you cash in, the team has some heavy lifting to do. For Finance and company leadership to maximize the opportunity at hand, there are important tasks to complete related to:

• Controls – Adequately document and test internal controls over financial reporting (ICFR) to be ready for an eventual audit by the external auditors. The Sarbanes-Oxley Act of 2002 is responsible for the ICFR regulations, and failure to comply can cause big headaches.
• Technology – Whether you are using your “starter” system (often QuickBooks) or have moved up, this will make a difference in the areas of efficiency, information security and management nimbleness.
• Processes – Tied to controls, how clearly documented, efficient and effective are your business processes? Are there other regulatory requirements that are factored in so ISO, FDA or other professionals can certify your processes?
• Organizational factors – Are your roles and responsibilities well defined (and from a controls standpoint, is there proper separation of duties)?

Here are 5 SOX readiness tips that will help pave the way for a smoother transition into the realm of public company ownership and investor bliss:

1. Key controls are king- providing a reasonable level of assurance that material errors will be prevented or detected in a timely manner. There is a tendency, especially in first time SOX implementations, to go overboard and design too many controls.

Be careful here since all key controls must be tested and determined to be operating effectively. The more controls, the higher the cost and effort associated with your SOX program. Supplement your internal team with experienced outside resources to assure you are taking an effective but practical approach to SOX.

2. Document and communicate financial, operating and legal policies and procedures from the beginning. Keep your team updated and aware of major changes- it will contribute to the right cultural mindset around the importance of internal controls and help you avoid a potential material control weakness on your first external audit.
3. Proactively plan and communicate with your external auditors. Agree up front on the approach you will use to assess risk and document controls. There is more one than one way to skin this cat, avoid big surprises by staying aligned with your auditors.
4. Pay attention to the segregation of duties, especially in smaller organizations, and design compensating and management review controls where needed. For example, do not allow the person that maintains the general accounting ledger to also have authorization to approve purchase orders. Create management review reports and set up recurring performance review sessions to spot and understand ratios or metrics that don’t make sense and may require more investigation. ERP systems today provide powerful analysis and reporting tools that can strengthen and improve your overall control environment. Click here to learn more about TSI’s consultancy expertise in ERP software evaluation, selection, and implementation.
5. Using financial tools like QuickBooks, NetSuite, or Intaact makes all the sense in the world for a start-up. They are relatively inexpensive and easy to begin using on-line. As you grow and your information needs become more complex, the costs to change increase and the payback period gets longer.

Have a plan for converting to a more robust financial platform from the beginning. Milestones such as an acquisition and/or the need for multiple companies, extremely high revenue growth, adding more people to your staff, the need to have complex revenue recognition, consolidation, inventory, billing options and other needs can easily trigger a move to evaluate more sophisticated systems.

Staying ahead of your system needs will help you avoid being in the midst of a technology conversion project during an IPO or an acquisition.

In summary, there is as much art as there is science to getting ready, establishing and maintaining effective control environments. Each organization and situation is different. TSI specializes in assisting high-growth middle-market clients with planning and execution for SOX and many other areas of finance. Contact TSI to learn more.

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A traditional approach to building operating budgets involves taking the prior year spend and adjusting it for inflation. Although easier to implement than other budgeting models, the traditional approach builds in and compounds inefficiencies, grows the expense base over time and doesn’t encourage managers to explore ways to reduce costs via innovation and technology. ZBB requires managers of cost centers to justify budgets from scratch and support their budgets with Decision Packages that analyze, prioritize and rank all activities and operations within their organization and highlight areas of opportunity to innovate and apply technology to automate and streamline the business.

To effectively implement ZBB, managers can leverage Process Improvement frameworks to provide relevant information on their departmental activities, outputs produced, resources consumed, service levels provided to customers and manual steps ripe for technology enablement. The need for process-based information, metrics and cost drivers is where Process Improvement really shakes hands with ZBB.

At a high-level, Process Improvement enabled ZBB involves the following nine steps:

1. Identify the organization’s core mission/strategy and evaluate gaps between current execution and the level of execution required to serve customers and excel in chosen markets.
2. Set-up or tap into an existing enterprise-wide Process Improvement architecture.
3. Identify cost centers and all processes/activities related to each cost center.
4. Analyze time spent by personnel in each cost center (processes/activities supported and outputs produced).
5. Prepare Decision Packages for each cost center (includes justification for cost center, how current funding level supports the current strategic plan, and what budget adjustments would be necessary if the cost center was eliminated or restructured to change its mix of activities).
6. Prioritize and rank Decision Packages.
7. Reallocate resources to support the core mission/strategy and realize potential cost savings.
8. Integrate results of the ZBB exercise with the annual budgeting process, process improvement and portfolio management activities.
9. Track, measure and validate targeted cost reductions and launch the next cycle of improvement.

ZBB and Process improvement can drive major cost savings and ROI. Successful implementation requires effective organizational change management and trust at all levels of the organization. It is especially important for outsiders to an organization to review costs in an objective, non-political manner. In the end, companies that do it well will reap major competitive advantages and rewards and the CFO and Finance Team will be regarded as nothing less than magical for creating value from Zero.

To learn more about transforming your business, contact TSI. 

The post Creating Value from ZERO…. Nine Steps for Finance to Enable Real Cost Reduction (AKA Zero-Based Budgeting Best Practices) appeared first on Transforming Solutions Inc..

An Insurance Company’s multiple changes in leadership within the 1,200 person Information Systems Group contributed to bureaucratic and costly processes to prioritize, define and implement information systems solutions. Consequently, there was a tremendous amount of “churning” of prioritized projects and redundant development efforts resulting in poor return on investments in technology.

TSI’s Role

Assembled and led a cross-functional project team to define a streamlined process to prioritize, define, design and build information systems. Implemented rapid, simplified systems development processes rather than complicated methodologies.

Results

The redesigned processes were used as the blueprint for all systems development projects throughout the organization, resulting in dramatically reduced cycle time to complete IT projects.

Click these links to learn more about TSI’s services, TSI’s experienced consulting team, and how they can help your organization achieve optimization in your processes.

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