Weekly Readings

So you think you have problems! Back in 1982, the nearly bankrupt Wickes Cos. owed $2 billion to a quarter-million screaming creditors. And to make matters even worse, its managers didn't have up-to-date financial information to guide them.

Although Wickes's financial problems are in a different league from what you're likely to face, I'll bet your information problems are comparable. Most businesses depend on their accounting systems to provide the information they need; yet company accountants and bookkeepers typically take two to three weeks after the end of each month to find errors, assemble data, and produce financial statements. As a consequence, if a company-threatening trend begins, say, in early February, managers may not discover this fact until they receive February's statements in late March or early April.

When Sanford C. Sigoloff signed on as Wickes chairman, chief executive officer, and president in March 1982, he decided the company's turnaround could not succeed with that kind of delay. So his people developed a financial reporting system that collects financial information for managers weekly and distributes it to personal computers on each manager's deak.

"Every Monday by midday, the system picks up cash transactions through the previous Saturday," says assistant treasurer John Lesar. The company's divisions take 24 hours to add their operating data and explanations. By midday Tuesday, managers have an updated picture of the company's sales, budget performance, cash flow, capital expenditures, intercompany transactions, inventories, working capital accounts, and financial ratios. "At the end of the month," Lesar says, "companywide totals usually fall within 1% of the financial statement figures, which arrive several weeks later. That's good enough information on which to base decisions."

Even though you may not have access to the financial and computer resources of Wickes, there are several ways that your own company can produce much of the same timely data -- and at a fraction of the cost.

Sales

Most companies enter shipments into their accounting systems daily. Whether your company puts this data into a computer or on paper, you can easily summarize and report it as frequently as you wish. For example, I used to generate a simple graph each week that showed how sales were running with respect to our profit plan (figure 1). If the trend looked bad by the second or third week of the month, we still had enough time to react. I also maintained a similar graph of sales orders.

Each Friday afternoon, our sales manager, manufacturing manager, and I would go through every sales order, reviewing shipping dates and discussing problems. By the end of this "backlog meeting" we'd each have a list of tasks to achieve by early the following week. This meeting also provided the information I needed weekly to update my hand-drawn bar graph of order backlog and its estimated gross profit content (figure 2). As our company's sales rose and fell, this graph provided the most accurate early warning we could get about the changes ahead.

We also hung a small chalkboard on the wall outside our president's office. Each evening, we would update it with the bookings and billings for the month, as well as the order backlog. If bookings or billings weren't what we expected by midmonth, our employees did whatever they could to get us back on track by month's end.

Budget performance

Since expenses come from several different sources, and since there are so many expense categories, week-to-week spending performance can be a little trickier to monitor. The easiest way that I've found is to summarize the data by department and then divide it up by source.

For example, suppose that the accounting department is budgeted for $1,000 of this amount comes from depreciation and accruals generated monthly, $900 of actual spending remains to be tracked weekly. Say roughly $500 of this amount comes from the payroll system in the form of wages, taxes, and benefits, and most of the remainder comes from invoices entered daily into the accounts-payable system. These facts allow me to forecast and track what the accounting department should generate weekly in payroll costs and in other expenses arising from vendor invoices. We can track other departments similarly.

Wickes takes one extra step that you should consider as well. It monitors its outstanding purchase orders. Many companies, unfortunately, will find this difficult to do because they have no system for tracking purchase orders. In a similar position, I always felt the unknown mass of purchase orders hanging over me, like the blade of a guillotine hidden by the fog. I knew that someday, without warning, a shipload of goods and invoices would arrive at my door, the blade would drop, and the cash would be severed from my clutches. Therefore, one way or another, I always try to create a system for tracking and reporting the orders we place with our vendors.

Cash flow

Computerized accounting systems have many failings. One of the worst of these is their shortage of tools for managing cash flows. When I prepare a 12-month cashflow forecast, for example, I estimate the cash I'll spend monthly for inventory, administrative expenses, marketing expenses, and so on -- but only the rare accounting system can report actual cash spending in this detail. Or when I prepare a six-week cash-flow forecast for a small company, I estimate the cash we'll spend each week for CODs, for regular monthly expenses, for payroll, for accounts payable, and so on. And, again, few accounting systems can report actual cash flows in these simple categories.