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Every owner is absentee owner

May 11, 2017

I contend that almost every owner is an absentee owner, regardless the amount of time they spend working in their business. I claim they are absentees since, while present, they are not managing but rather working in their business on what needs to be done…that moment or that day. They are not really running their business – they might as well be in another part of the country. Given that this is so there are a few things they could get and if they spend focused time of just two or three minutes a day and a half hour once a month they can gain control over their business and have data they can use to their fullest extent. On the other hand, if they were really an absentee owner, what type of information would they want to receive daily and monthly? Here is a listing and reasons.

Daily reports (about 3 minutes)

  • Daily cash report – this is a single sheet with the daily cash receipts, disbursements and cash account balance – time to view: 1 minute
  • 4 or 5 key performance indicators – This is essential information about the business for the previous day. Examples are number of units produced and sold, total production hours or total personnel head count, hotel rooms occupied and average room rate, pounds of steel received and shipped, patient visits and medical or dental procedures performed, restaurant covers, order backlog, chargeable hours, hospital bed count and average stay, new real estate listings and closings, or orders received and shipped or hit ratios from websites – time to view: 2 minutes

Weekly reports (about 2 minutes)

  • Summary of aged accounts receivable schedule compared to previous month’s and the beginning of the year amounts – time to view: 1 minute
  • Summary of aged accounts payable schedule compared to previous month and beginning of the year – time to view: 1 minute

Monthly reports (about a half hour)

  • Profit and loss statement for current year by each month of the current year, and compared to the yearend amount for the previous year – time: 2 minutes
  • If a product is sold, review monthly percentage of purchases to sales [this should be done when reviewing the profit and loss statement) – time: 1 minute
  • Look at percentage of all labor and benefits costs to sales – a separate schedule should be prepared for this – time 1 minute
  • Balance sheet for current year with a column for each month and the previous year’s ending amounts – time: 2 minutes
  • Aged accounts receivable schedule – time: 5 minutes (with bookkeeper present or skype or on phone). Without bookkeeper – 10 minutes
  • Aged accounts payable schedule – time 3 minutes
  • Inventory valuation from perpetual records compared to previous month and to the prior year’s ending balance – time 2 minutes
  • Schedule of bank loan covenant compliance – time: 1 minute
  • Sales from 10 largest customers compared to previous year’s sales: 1 minute
  • Purchases from 10 largest suppliers: 1 minute
  • Average invoice amount by month for the previous 12 months: 1 minute
  • Review general ledger transactions for month and year to date: 5 minutes

Ongoing as necessary

  • Approve contracts and single purchase commitments over a predetermined dollar amount, e.g. $20,000, $100,000 or $250,000 depending on size of company
  • Have on-line access to accounting system

At least once a year to be performed by independent accounting firm

  • Internal control review
  • Review one bank reconciliation for each bank account chosen randomly
  • Review tax withholding payments made by payroll service for a randomly selected month
  • Sales tax returns and payments’ review
  • State and local tax compliance review
  • Form 8300 cash reports review
  • Review one of each report provided to the “absentee owner”

This listing looks involved, and it is, but with the information presented properly and promptly the time spent for the owner should not be onerous. Also, this is a way to control your business. The amount of time suggested is negligible based on the total time you already spend and this will enable you to have better control over what is likely an important asset for you. Try it – it works!

A postscript is that if your business does not have ability to provide the information shown above, that is a clear indication of a business out of control with serious deficiencies.

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